What is the s455 director’s loan tax charge?

Explanation of s455 director’s loan tax charge

The s455 tax charge arises under the UK Corporation Tax Act 2010 when a close company provides a loan or advance to a participator and the balance is not repaid within nine months and one day after the end of the accounting period.

The purpose of the charge is to discourage the extraction of value from a company in the form of loans rather than taxable income such as salary or dividends. The charge is temporary in nature, as it may be reclaimed once the loan is repaid, written off, or otherwise cleared.

The tax is calculated as a percentage of the outstanding loan balance and is payable by the company, not the individual. In practice, the s455 charge is closely linked to director’s loan account (DLA) management and compliance, particularly for owner-managed businesses and SMEs.

Key characteristics of s455 director’s loan tax charge

Key characteristics of s455 director’s loan tax charge include the following:

• It applies to loans made by close companies to participators, including directors and shareholders.
• It arises where the loan remains outstanding after nine months and one day from the accounting period end.
• It is calculated as a percentage of the outstanding loan balance.
• It is payable by the company rather than the individual borrower.
• It may be recoverable once the loan is repaid or otherwise cleared.

How s455 director’s loan tax charge works

• A loan is made by a close company to a participator or director.
• The loan balance is reviewed at the end of the accounting period.
• If the loan remains outstanding after nine months and one day, the s455 charge applies.
• The company pays the tax based on the outstanding amount.
• The tax may be reclaimed after the loan is repaid or written off, subject to timing rules.

Example of s455 director’s loan tax charge in practice

A UK limited company lends £20,000 to its director during the accounting period. If the balance remains unpaid nine months after the year end, the company becomes liable for an s455 tax charge based on the outstanding amount. If the loan is later repaid, the company may reclaim the tax.

Related terms

• Director’s loan account (DLA)
• Close company
• Participator
• Corporation Tax
• Dividend
• Benefit in kind
• HMRC

Common misconceptions about s455 director’s loan tax charge

The s455 charge does not represent a permanent tax cost in all cases, as it may be recoverable once the loan is cleared.

The s455 charge does not apply to all loans, as specific exemptions and conditions may be relevant.

Frequently asked questions about S455

When does the s455 tax charge apply?

It applies when a loan to a participator remains outstanding nine months and one day after the end of the company’s accounting period.

What is the current s455 tax rate?

The s455 tax rate is aligned with the higher rate of dividend tax and may change in line with UK tax legislation.

Can the s455 tax charge be reclaimed?

The charge may be reclaimed by the company once the loan is repaid, written off, or otherwise cleared, subject to timing rules.

Who pays the s455 tax charge?

The tax is paid by the company that made the loan, not the individual who received it.

Does the s455 charge apply to all director’s loans?

The charge does not apply in all circumstances, as certain thresholds, repayments, or qualifying arrangements may affect its application.