A director's loan account is simply the running record of money moving between a director and their company that is neither salary, dividend nor a legitimate expense. When you owe the company money, the account is overdrawn, and that is where the personal tax consequences start. The corporation tax charge on the company is the part most directors have heard of, but an overdrawn loan also reaches your own Self Assessment return, first as a benefit in kind while it is outstanding and then, if it is ever written off, as a dividend.
What a director's loan account is
The director's loan account tracks the balance between you and your company outside the normal payroll and dividend routes. It is in credit when the company owes you, for example where you have lent it start-up funds or paid company costs personally. It is overdrawn when you owe the company, typically where you have drawn cash in anticipation of profits that have not yet been voted as dividends. A loan account in credit raises no personal tax issue; an overdrawn one does, and the rules below all assume the account is overdrawn at some point in the year.
The beneficial loan benefit in kind
While an overdrawn loan is outstanding, the company is in effect lending you money. If that loan is interest-free or charged at less than HMRC's official rate, and the balance exceeds £10,000 at any point in the tax year, the difference is a taxable benefit in kind. The official rate of interest is 3.75% for 2026/27. The cash equivalent of the benefit, broadly the interest you would have paid at the official rate less anything you actually paid, is reported on your P11D and taxed as income on you, with the company paying Class 1A National Insurance on the same figure.
Two practical points follow. First, the £10,000 line is tested across the whole year, so a balance that briefly spikes above it can bring the benefit into charge even if the year-end figure is lower. Second, charging yourself interest at or above the official rate, and actually paying it to the company, removes the benefit entirely. For a high earner the benefit also adds to adjusted net income, the measure that drives the personal allowance taper, so the way a director's loan is handled can feed the 60% effective-rate band as well as the benefit charge itself. The mechanics of P11D reporting are set out in the companion benefits in kind guide.
The section 455 charge on the company, and how it interacts
Separately from your personal position, an overdrawn loan that is not repaid within nine months and one day of the company's year end triggers a corporation tax charge on the company under section 455 of the Corporation Tax Act 2010, at 33.75% of the amount outstanding. This is the company's liability, not yours, and it does not appear on your personal return. It is refundable to the company once you repay the loan, but the refund is slow, coming nine months after the end of the accounting period in which the loan is cleared.
The reason it matters to you personally is that it shapes the decision about how to clear the loan. Repaying the loan removes both the benefit in kind and the section 455 exposure, but if you clear it by voting a dividend or a bonus, that extraction is itself taxable on you. The choice between leaving the loan in place, charging official-rate interest, or extracting profit to clear it is a personal tax decision as much as a company one.
When the loan is written off or released
If the company formally writes off or releases an overdrawn loan to a director who is also a shareholder, the amount written off is treated as a distribution and taxed on you as a dividend in the year of the write-off. It goes on the dividend pages of your Self Assessment return and is taxed at the dividend rates, which from 6 April 2026 are 10.75% at the basic rate, 35.75% at the higher rate and 39.35% at the additional rate, after the £500 dividend allowance. A large written-off balance can therefore push you up through the dividend bands and, like any dividend, add to the income that drives the personal allowance taper.
A write-off is not a clean escape from the loan. The dividend charge on you, combined with National Insurance complications that can arise where the director is also an employee, often means writing the loan off is more expensive than repaying it. It is a route to use deliberately, not a default.
Where each item lands on the return
- The beneficial loan benefit in kind: reported by the company on the P11D and collected through your tax code or the employment pages of your Self Assessment return.
- A loan written off or released: entered on the dividend section of your return and taxed at dividend rates in the year of the write-off.
- Interest you pay the company on the loan: reduces or removes the benefit in kind, and is income in the company, but is not a deduction on your personal return.
- The section 455 charge: the company's corporation tax liability only, with no entry on your personal return.
Common questions about director's loans and your return
Do I have to put my director's loan on my tax return?
Not the loan itself, but its consequences. A beneficial loan benefit is reported on the P11D and reflected in your tax code or employment pages, and a written-off loan goes on the dividend pages. The outstanding balance on its own is a company accounting matter, not a line on your return.
How do I avoid the benefit in kind on a director's loan?
Keep the balance at or below £10,000 across the whole year, or charge yourself interest at HMRC's official rate of 3.75% for 2026/27 and actually pay it to the company. Either approach removes the beneficial loan benefit, though the section 455 charge on the company can still apply to an unpaid balance.
Is a written-off director's loan taxed as income or dividend?
For a director who is also a shareholder, a written-off loan is treated as a distribution and taxed as a dividend on your return at the dividend rates, after the £500 allowance. National Insurance can also be in point where you are an employee, which is one reason a write-off is often dearer than simply repaying.
Does a director's loan affect my personal allowance?
It can. The beneficial loan benefit and any written-off balance both add to your adjusted net income, so for a director near £100,000 they can trigger or deepen the personal allowance taper and the 60% effective rate. The cost is not just the charge on the loan but the allowance it can quietly erode.
A director's loan account is one of the easiest things to let drift and one of the more expensive to unwind badly, because the same overdrawn balance can carry a benefit in kind, a corporation tax charge and a dividend charge depending on what you do with it. HMRC's overview of directors' loans sets out the basics, and a self-assessment accountant can model whether to charge interest, repay, or extract profit to clear it, and make sure each consequence lands correctly on your return.
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Self Assessment Accountants in HarrowThis article reflects current HMRC guidance as of April 2026. Key references: HMRC Self Assessment overview, HMRC SA returns collection. Tax rules change annually. Always verify deadlines and thresholds at gov.uk or with a qualified accountant.
Our editorial team includes ACCA-qualified accountants and tax writers with experience across self-employment, rental income, and HMRC compliance. All articles are reviewed annually against current HMRC guidance and updated where rules change.