What is an overdrawn directors loan account?

If you have an overdrawn loan account at the period end, S455 tax may be due depending on when it is repaid.

S455 tax is just a tax charge that is charged at a rate of 32.5% of the outstanding loan at the period end. It is payable by the company and is due to be paid alongside the corporation tax payment – nine months and one day after the end of the accounting period.

If the loan is repaid within nine months of the period end no S455 tax charge will apply.

If the loan is still outstanding nine months after the period end S455 tax is due. This tax can only be claimed nine months and one day after the end of the accounting period in which the loan is repaid.

There could also be income tax and national insurance complications for both you and your company if the loan balance is greater than £10,000 as this will need to be reported on a P11D if interest is not paid to the company at HMRC’s official rate which is currently 2.5%.

The company will pay Class 1A NIC at 13.8% on the value of the benefit and the benefit will need to be included on your Self-Assessment tax return.

Please note that S455 tax is due on whatever the overdrawn balance is if it remains unpaid nine months after the period end and is not restricted to loans over £10,000.

This can be a complex area, so please do get in touch with us today. We can help you understand your obligations if you find yourself in this situation. Please contact us on 0203 827 6000 or use our simple online contact form to arrange a free initial consultation.

Date published 4 Oct 2019 | Last updated 29 Sep 2020

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.