S455 Tax on Overdrawn Director Loans

When a company loans money to a participator or associated person - normally a director - and the loan is not repaid within 9 months the balance is subject to S455 tax.

This additional corporation tax is charged at the higher rate of dividend tax, which is currently 33.75%. Interest is also due until the corporation tax is paid or the loan is repaid.

When the loan balance is repaid, written off or released, the proportional amount of S455 tax can be reclaimed. Claims can be made 9 months and 1 day after the relief is due and must be made within 4 years. This represents a cashflow disadvantage for companies.

Where a director loan exceeds £10,000 it should also be treated as a 'benefit in kind' with Class 1A NIC deducted.

S455 tax is often payable by companies on overdrawn director loans

Example:

John has an overdrawn director loan of £100,000 which has not been repaid within 9 months.

S455 tax is calculated as £100,000 x 33.75% = £33,750.

The company pays the balance in full and on time so no additional interest is charged.

John later repays £50,000 so the company can later reclaim £50,000 x 33.75% = £16,875.

The company also deducts Class 1A NIC and John must report the loan on his personal self-assessment tax return.

Points to note:

This document is a simplified helpsheet and careful research should be completed if you are unsure.

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