Loans to Directors: CT61 and S455 Explained

Discover the essential rules for directors' loans in UK limited companies, including CT61 reporting for interest and the S455 tax charge. Learn how to avoid costly penalties and stay compliant with HMRC.

What Are Directors' Loans?

Directors' loans occur when a director borrows money from their limited company or lends money to it, tracked via a directors' loan account in the company's books.[1][2] These are common for short-term cash needs but carry strict tax rules to prevent abuse.[1][6]

• Overdrawn (debit) balance: Director owes money to the company – risk of S455 tax if unpaid.[1][2]
• In credit balance: Director lends to the company – simpler, but interest may trigger CT61 reporting.[2][8]

Accurate record-keeping is vital, with details disclosed in company accounts.[1]

S455 Tax: The Key Penalty for Overdrawn Loans

If an overdrawn directors' loan exceeds 9 months and 1 day after the company's accounting period end, the company pays S455 tax at 33.75% of the outstanding balance.[1][2][3][4] This is a corporation tax charge, reported on CT600 (with CT600A supplement) and due alongside corporation tax.[1][2][4]

• Paid by the company, not the director.[1][6]
• Refundable: Reclaimed 9 months and 1 day after the period when the loan is repaid (full or partial).[3][4][5]
• Only applies to advances, not the full balance (e.g., tax on £2,000 increase from £8,000).[2]

Exceptions where S455 does not apply:

• Loans in ordinary money-lending business.[3]
• To charitable trusts or low-interest employees/directors (£15,000 max, <5% company interest).[3]

Writing off the loan treats it as a dividend for the director (taxed personally) and allows S455 reclaim.[5]

For strategic tax planning alongside loans, explore our Director Salary vs Dividends 2026 Strategy Guide.

CT61 Reporting: Handling Interest on Loans

CT61 is a quarterly return for companies paying interest, including on directors' loans.[2][3][7][8]

Director Lends to Company (In Credit)

• Director can charge interest: Counts as personal income (report on Self Assessment).[2][8]
• Company deducts 20% basic rate tax, pays net interest, and submits CT61 quarterly to HMRC.[2][3][7][8]
• Interest is a deductible business expense for the company.[2][8]

Company Lends to Director (Overdrawn)

• To avoid benefit-in-kind (BIK) tax on loans over £10,000, charge interest at HMRC's official rate or pass a board resolution.[1]
• Interest payments trigger CT61 withholding at 20% basic rate.[7]

Anti-Avoidance Traps: 30-Day and Bed & Breakfasting Rules

HMRC blocks tax avoidance via quick repayments and re-borrowing:

• 30-day rule: Repayments of £5,000+ followed by new borrowing of £5,000+ within 30 days are ignored; S455 applies to the original loan.[3][4][9]
• Bed & breakfasting: Repayments apply to newest loans first, leaving older loans exposed to S455 (plus interest).[4]

These ensure genuine repayment before relief.[4]

Benefit-in-Kind and Other Risks

Loans over £10,000 may create a BIK for the director, taxable personally unless interest is charged.[1][6] Employment income rules could apply if no interest, but dividend treatment often prevails.[5][6]

Best Practices for Compliance

• Repay within 9 months to avoid S455 entirely.[1][2]
• Charge official interest on large loans.[1]
• Document everything: Board minutes, agreements, CT600A filings.[1][4]
• Monitor balances quarterly to dodge surprises.[6]

Stay Ahead with Expert Advice

Directors' loans offer flexibility but demand precision to sidestep 33.75% S455 charges, CT61 filings, and BIK taxes. Consult Cheshire Business Accountants for tailored strategies, ensuring your 2026 planning aligns with HMRC rules.

Tags: directors loans, S455 tax, CT61, corporation tax, HMRC compliance, director salary vs dividends, UK limited company taxes

Category: Tax Advice for Directors

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Sources

1. https://harrisonsaccountancy.co.uk/understanding-s455-directors-loans-key-tax-implications-for-uk-companies/
2. https://www.morethanaccountants.co.uk/how-do-directors-loans-work/
3. https://bhp.co.uk/news-events/blog/directors-loan-accounts-the-good-the-bad-and-the-ugly/
4. https://www.1stformations.co.uk/blog/borrow-money-from-limited-company/
5. https://www.cliveowen.com/2025/09/tax-implications-of-writing-off-a-directors-loan/
6. https://hwfisher.co.uk/director-loans-what-you-should-know-about-potential-tax-liabilities/
7. https://rayneressex.com/news/understanding-directors-loans-all-you-need-to-know-rayner-essex/
8. https://www.gov.uk/directors-loans/you-lend-your-company-money
9. https://mooreks.co.uk/insights/directors-loan-accounts-the-tax-traps-of-using-your-company-as-a-personal-bank-account/