What is S455 Tax?
If a close company provides loan to directors or shareholders and the loan remains unpaid for 9 months and 1 day after the end of the accounting period in which the loan was made, a tax charge applies which should be paid to HMRC by the company. This is refundable when loan is repaid within 4 years or written off.
This applies to all direct loans and indirect loans if benefiting the participator.
Close company is one which is controlled by a maximum of 5 shareholders or by any number of directors who are also shareholders.
Due date and rates:
Tax rate:
As of 2025, the tax charge is 33.75% which is in line with dividend rate.
Due date:
- For Small companies, due in 9 months and one day after the end of the relevant accounting period.
- For Large companies (Profits > £1.5M) are required to pay Corporation tax including S455 Charge in quarterly instalments.
How it is paid:
- Paid by the company when submitting the Corporation tax return (CT600). The outstanding loan amount must be disclosed on the CT600A supplementary page.
Repayment:
- When loan is repaid or written off by company, S455 tax paid earlier will be refunded to the company.
- HMRC requires companies to wait 9 months and one day from the end of the accounting period in which the loan was cleared.
- HMRC will then assess the outstanding loan and determine the amount of S455 tax eligible for repayment.
Restriction on repayment of S455 tax
In the following cases the repayment of S455 tax will be restricted,
- 30-day bed and breakfasting rule: If the amount is repaid within due date and followed by a similar loan within 30 days, HMRC treats it as if no repayment had occurred at all and S455 tax remains payable.
- £15,000 rule: If the outstanding loan is more than £15,000 and it is repaid with an intention to withdraw at least £5,000 from the company at a later date, S455 tax will still remain payable.
Implications for the Participator
- When a company writes off the loan – company will receive a repayment of the S455 tax. Director will be treated as receiving a dividend equal to the amount of the loan written off. This is not an allowable deduction for corporation tax purposes.
- If the director is also an employee – It is treated as earnings from employment for NIC purposes, and is subject to Class 1 NIC. Company will pay Class 1 NIC at 15% (25/26 tax year).
- NIC paid by the company is a deductible expense for company.
Exceptions
- When loan was repaid in 9 months 1 day of year end of the company.
- Loan made during the normal course of business i.e., banks and money lenders.
- Loan of not more than £15,000 is provided to Shareholder is an employee who holds less than 5% shares.
DLA
Director’s Loan Accounts (DLAs) are often used by directors to take money out of the business before dividends are declared or salaries are paid. Every transaction should be recorded clearly to see whether a director owes money to the company, or vice versa.
An overdrawn DLA indicates that the director owes money to the company. If this overdrawn balance isn’t repaid within the specified period, the company may be subject to S455 tax.
If you intend to offset a loan balance with dividends, make sure dividends are properly declared, supported by adequate profits, and documented in board minutes.
Sources:
Roy Accountants 