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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.

Should director pay interest on their overdrawn DLA ?⁴
Please use Excel calculator below.

Sources:

1. https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61505
2. www.taxjournal.com
3. Kaplan Workbook
4. Taxcafe Book – Salary vs Dividend Pg 177

Key changes for SMEs with date of change.

From 6 April 2026           

1. Statutory Sick Pay 
   
   Removal of the Lower Earnings Limit
   All eligible employees will be entitled to SSP regardless of income. SSP will be paid at 80% of normal weekly earnings or the uprated weekly flat rate of £123.25, whichever is lower.
   
   Removal of the Waiting Period
   SSP will be paid from the first full day of sickness absence, not from day four.
   
   From October 2026    
       
   
2. Tipping  
   
   Employers will need to:
   
   a. consult with workers or their representatives before creating a tipping policy.
   
   b. update their tipping policy every 3 years – most restaurants made new tipping policy in circa Oct 2024 due to Employment (Allocation of Tips) Act 2023 which required them to pass 100% tips to employees, so due date for update of tipping policy will be in Oct 2027.
   
   
3. Employment tribunal time limits
   Time limits for making a claim to an employment tribunal will increase from current 3 months to 6 months.
   
   From 1 January 2027
   
   
4. Unfair dismissal – for an employee to bring an unfair dismissal claim against an employer, time period that employee needs to be in the job will be reduced from 2 years to 6 months.
   
   Other 2027 changes
   
   
5. Zero-hours and low-hours contracts – Workers will get right to guaranteed hours.
   
6. Compensation for cancelled shifts, moved to another date, or cut short by an employer.
   
7. Reasonable notice of shifts – Employers must provide reasonable notice of shifts and changes to shifts.

Sources and further reading:

1. Employer bulletin Feb 2026 re Statutory Sick Pay 
2. Employment Rights Act 2025 – Acas

First VAT return is usually of repayment. I have listed below actions you can take to make the process easier .

1. File early to get monies early.
   Do not wait for the deadline. HMRC processes repayment within 30 days of VAT submission date, not deadline date, so earlier you file earlier you will get repayment in your bank account.

2. Use HMRC online tool to check VAT repayment status: link

3. Email address of HMRC VAT repayment team given below, but do not chase them before 30 days.

vatfirstperiodrepaymentclaims@hmrc.gov.uk

4. Prepare to submit supporting paperwork online and then wait for the letter with Case reference.
You can use this service to check on documents required to ensure all are available while preparing VAT return. HMRC will send a letter in post requesting paperwork to support the repayment like invoices, bank statement etc. Previously we had to send everything by post but now it’s done online. You can start preparing immediately and once letter with Case reference is received, submit the form.

Send details to support your VAT repayment claim – GOV.UK

Agent can complete this form on behalf of the client.

Source:

1. VAT repayments: Overview – GOV.UK

Dividends

In the hands of an investor (unit holder) within the charge to IT, dividend distributions are treated in the same manner as any other UK company dividend.¹

Equalisation is returned capital sum. As it is a capital receipt, it should be deducted from the unit holder’s cost of the units for CGT purposes. ²

It should not be treated as a capital distribution. It is a return of the initial price paid and it should therefore be deducted from the price paid when computing the chargeable gain on the eventual disposal. ³

Calculation for tax return

Dividend

Tax payer usually receives a Tax Certificate from his Broker showing both dividends paid and equalisation figure. Dividend figure included equalisation, so we need to deduct equalisation figure to get to the Dividend figure that needs to be reported in the tax return.

Capital Gain

Equalisation should not be treated as a capital distribution. It is a return of the initial price paid and it should therefore be deducted from the price paid when computing the chargeable gain on the eventual disposal. ³

Tax Return

UK Company Dividends are put in Box 4 and AIF distributions Box 5 of SA100 TR3.

Notes:

1. IFM03350
2. see IFM02230 for an example
3. CG57705

Step 1: Login into your Personal tax account; using link

https://www.gov.uk/personal-tax-account

Step 2: Click `National Insurance and State Pension`

Step 3: Check out both links below:
               State Pension Summary
               National Insurance record

Step 4 : Check all years to show `Full year`.