If you run your own limited company in Wigan or anywhere in the North West, there is a good chance your director’s loan account has gone the wrong way at some point. Money taken out for a personal bill, drawings taken “on account” before the dividends were sorted, or a company card used for something that was not really business. None of that is unusual, but if the balance is still owed to the company when the deadline arrives, it can trigger an extra Corporation Tax charge, and the rate went up this year. Here is a plain-English guide to what an overdrawn director’s loan account means, what it can cost, and how to put it right before it becomes a problem.

What is a director’s loan account?

A director’s loan account is simply a running record of money moving between you and your company that is not salary, dividends, expense repayments or money you originally put in as share capital. If you lend the company money, the account is in credit and the company owes you. If you take money out that has not been treated as salary or dividends, the account is overdrawn and you owe the company.

Your bookkeeping should keep this account up to date all year. If you use Xero, QuickBooks or similar software, it will usually be a separate account in your balance sheet. If you are not sure what your balance is today, that is the first thing to find out. Good bookkeeping makes the rest of this much easier.

The nine-month rule and section 455 tax

If you are a director and shareholder of a small, owner-managed company (which in tax terms is almost always a “close company”), and you still owe the company money nine months and one day after the end of its accounting period, the company has to pay extra tax on the amount still outstanding. This is known as section 455 tax, or s455.

The deadline lines up with the normal Corporation Tax payment date:

• Year end 31 March 2026: repay by 1 January 2027 to avoid the charge.
• Year end 30 June 2026: repay by 1 April 2027.
• Year end 31 December 2026: repay by 1 October 2027.

So if your company has a 31 March year end, which many Wigan businesses do, you have until New Year’s Day to clear what you owe. That makes now, ahead of the Christmas rush, the sensible time to look at it.

How much is s455 tax?

The s455 rate is tied to the higher dividend tax rate for the tax year the money was taken out. Because dividend tax rates rose from 6 April 2026, s455 rose with them:

• Money taken out between 6 April 2022 and 5 April 2026: 33.75%.
• Money taken out on or after 6 April 2026: 35.75%.

That means a company year that straddles 6 April 2026 can have loans charged at both rates. As an example, if £20,000 taken out after 6 April 2026 is still owed at the deadline, the company would have to pay £7,150 of s455 tax on top of its normal Corporation Tax.

The good news is that s455 is not a permanent cost. The company can reclaim it once the loan has been repaid, written off or released. The catch is timing: the repayment does not come back straight away. It is only due nine months and one day after the end of the accounting period in which the loan is cleared, so a large overdrawn balance can tie up cash for well over a year.

The benefit in kind if you owe more than £10,000

There is a second, separate issue to watch. If the total you owe the company goes above £10,000 at any point in the tax year, and you are paying the company less than HMRC’s official rate of interest (3.75% for 2026/27), the cheap loan counts as a taxable benefit in kind. That means:

• It has to be reported on a P11D (or payrolled, if the company payrolls its benefits).
• You pay Income Tax on the benefit through your tax code or Self Assessment.
• The company pays Class 1A National Insurance on it at 15%.

Going even £1 over the £10,000 limit makes the whole balance count, not just the excess. Keeping the balance below £10,000 throughout the year, or paying the company interest at the official rate, avoids the benefit.

Ways to clear an overdrawn director’s loan account

There are three common ways to bring the account back into balance. Which one suits you depends on your personal tax position, your company’s profits and your cashflow.

1. Repay it in cash

The simplest option. Transfer the money back from your personal account before the deadline and there is no s455 charge. Do keep a clear record of the date and amount.

2. Declare a dividend

If the company has enough retained profits after Corporation Tax, it can declare a dividend and credit it against your loan account. The dividend is taxed on you personally. From 6 April 2026 the rates are 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% for additional rate taxpayers, after the £500 dividend allowance. Dividends must be properly declared with board minutes and vouchers, and they can only be paid out of genuine profits, so up-to-date management accounts matter here.

3. Pay a bonus or extra salary

The company can pay you a bonus through payroll and use it to clear the loan. This is usually more expensive than a dividend once Income Tax and both employee and employer National Insurance are added, but the bonus is an allowable cost for Corporation Tax, so it can make sense in some cases. It is worth running the numbers before deciding. Our earlier guide to salary vs dividends for company directors explains the trade-off.

Watch out for “bed and breakfasting”

It can be tempting to repay the loan just before the deadline and take the same money out again a few days later. HMRC has rules to stop this. If you repay £5,000 or more and then borrow £5,000 or more again within 30 days, the repayment can be matched against the new loan and ignored, so the s455 charge still applies. There are also wider rules where loans of £15,000 or more are repaid with a plan to draw the money out again. The safest approach is a genuine repayment that stays repaid.

A quick checklist for Wigan company directors

• Find out your current director’s loan account balance, not just last year’s figure.
• Check your company’s year end and work out your nine-month deadline.
• Split any balance into money taken before and after 6 April 2026, as the s455 rate differs.
• Check whether the balance went over £10,000 at any point this tax year.
• Decide whether to repay in cash, use a dividend or pay a bonus, and look at the personal tax cost of each.
• Make sure dividends are properly documented and covered by profits.
• Stop new personal spending going through the company account, or record it straight away.

How CMA Accountancy can help

We help directors of limited companies across Wigan, Standish, Appley Bridge and the wider North West keep their director’s loan accounts under control. That includes reviewing your balance before the deadline, working out the cheapest way to clear it, preparing dividend paperwork, and making sure everything is reported correctly in your company accounts and Corporation Tax return. If your company has a January year end, our guide to the Corporation Tax deadline for January year-ends is also worth a read.

If you think your loan account may be overdrawn, talk to us sooner rather than later, as there are more options the earlier you act. Email [email protected], call 01257 255521, or get in touch with your local accountant in Wigan through our contact page.

This article is general guidance based on the rules for 2026/27 and is not a substitute for advice on your own circumstances.