What is s455 Tax?
-
It’s not uncommon for company directors to move money between their business and personal accounts. Often, it’s done without much thought: a short-term loan to cover something, or an advance before the next dividend. The trouble is, HMRC keeps a close eye on these transactions, and in some cases, they may even lead to a tax investigation if the rules aren’t followed. One rule in particular can catch people out: Section 455 tax.
Many directors only hear about it when an unexpected bill lands. Knowing what it is and when it applies could save you a lot of hassle – and potentially a large chunk of cash flow.
Contact us today for a free, zero-obligation consultation.
Understanding s455 Tax and Why It Exists
S455 tax is a charge paid by the company, reported via its company tax return, not by the director, when a business lends money to one of its directors (or to someone connected with them) and the loan is still outstanding at the end of the accounting year.
The current s455 tax rate is 33.75% of the unpaid loan balance. The reasoning behind it is fairly straightforward: HMRC wants to prevent people taking money from a company as a loan to avoid paying income tax.
It doesn’t apply to salaries, dividends, or expenses – only to loans. And it’s not permanent. If the loan is repaid, the company can reclaim the tax. But timing is key.
When Does s455 Tax Apply?
The main trigger is an unpaid director’s loan that’s still on the books nine months after the company’s year-end.
Say your financial year ends on 31 March. If a director’s loan is still outstanding on 1 January the following year, the company will have to pay s455 tax on the amount.
There are exceptions. Small loans under £10,000 that don’t benefit from reduced interest rates are usually fine. Loans repaid before the nine-month deadline don’t attract the charge. Transactions between companies in the same group are also exempt.
Where people get caught out is by assuming they can repay the loan briefly and take it back straight away – known as “bed and breakfasting” – which HMRC has rules in place to challenge.
Repaying the Loan and Claiming a Refund
The good news is, if you repay the loan, the s455 tax can be reclaimed. The slightly less good news is that it’s not automatic and it’s not instant.
The company will need to file a claim with HMRC, and the refund is only processed after the end of the accounting period in which the repayment took place. This means you could be waiting many months for the cash to come back, which is why planning ahead is so important.
The Impact of s455 Tax on Your Company
Apart from the obvious cost, s455 tax can create a real strain on cashflow. That money could otherwise be used to reinvest in the business, pay suppliers, or cover day-to-day running costs.
It also highlights a bigger issue: the separation between company and personal funds. For sole directors, it’s easy to think of the company bank account as an extension of their own – but legally, they’re two separate entities. Treating them as one can lead to avoidable tax and compliance problems.
How Mollan & Co Can Help You Manage s455 Tax
We’ve worked with directors across York, Stamford Bridge, and the surrounding areas for decades. That experience means we can usually spot a potential s455 issue long before it becomes a problem.
Whether it’s helping you plan repayments to avoid the charge entirely, managing the reclaim process, or explaining how a director’s loan will affect your accounts, we keep it simple and clear. You’ll have a dedicated accountant who knows your business, not a revolving door of contacts, and we use cloud-based tools like Xero to keep everything up to date.
You can read more about our accounting services or how we work with small business owners.
If you’re unsure whether s455 tax could apply to you, it’s best to check now rather than wait for a bill. Contact Mollan & Co and we’ll talk you through your options.
Author ProfileI'm the owner and Managing Director of Mollan & Co Accountants. I'm a skilled and efficient accountant with more than 20 years of experience in the industry.
I developed valuable skills in commercialisation through my work in the science and technology department at the Scottish University. Then, in 2002, I formed my own internet-based marketing company, producing and distributing 360° virtual reality tours for the Scottish tourism sector.
I now use my commercial skills, expert tax knowledge and first-hand experience to help other businesses grow and flourish through strong accounting practice.
Our success at Mollan & Co is directly related to the success of our clients.
