An overdrawn director's loan account in your medical company triggers s455 tax. That is a Corporation Tax charge on the company at 35.75% of the balance still outstanding nine months and one day after the accounting period ends, on loans made on or after 6 April 2026. Loans made in 2025/26 carry 33.75%.
The charge is refundable under section 458 once you clear the loan, but the refund is deferred by up to a further year.
How a directors loan account arises in a medical company
A director's loan account, usually shortened to DLA, is the running record in your company's books of money moving between you and the company outside salary and declared dividends. Money you put in leaves the account in credit and the company owing you. Money you take out without a dividend resolution or a payroll entry leaves it overdrawn and you owing the company.
In a consultant's private-practice company the account tips overdrawn quietly. Cash builds up, you draw it when you need it, and the dividend paperwork waits. A dividend needs distributable profits and a board resolution, and where that step is skipped the movement defaults to a loan.
One structural point sits underneath all of this. An NHS GMS or PMS contract belongs to GPs, their partnerships, or a company limited by shares whose shareholders all qualify, which your ordinary personal service company is not.
The company is a vehicle for private work: insurance medicals, self-pay clinics, medico-legal and expert-witness reporting, occupational health, and locum work outside IR35. The broader case for and against incorporating sits on the guide to the tax benefits and drawbacks of a medical limited company.
Why the direction of your directors loan account decides the tax
Everything that follows turns on which way the balance points.
| Overdrawn (you owe the company) | In credit (the company owes you) | |
|---|---|---|
| s455 tax on the company | Yes, 35.75% of the balance outstanding 9 months and 1 day after the period end, on loans made on or after 6 April 2026 | None |
| Beneficial-loan benefit in kind | Yes, if the balance exceeds £10,000 at any point in the tax year | Not applicable |
| P11D and employer Class 1A NIC | Required where the benefit in kind arises, Class 1A at 15% | Not required |
| Tax when you repay or draw down | No income tax on your repayment, but the company has already paid the s455 charge | None, it is a return of your own capital |
| Section 458 relief timing | Deferred to 9 months and 1 day after the accounting period of repayment | Not applicable |
What is s455 tax, and which companies pay it?
Your medical company is a close company under CTA 2010 because it is controlled by five or fewer participators. A participator is anyone with a share in the company's capital or income, which in practice means you and any family shareholders. Section 455 charges the company on any loan made to a participator that is still outstanding nine months and one day after the end of the accounting period in which it was made.
Section 455 creates a company liability. It sits in the company's Corporation Tax return and is paid with the company's tax bill, and HMRC's normal late-payment interest and penalties apply if it is missed. The charge also bites on the whole balance outstanding at that measurement date, including advances carried in from earlier years.
Section 456 lists the loans that fall outside the charge:
- Loans made in the ordinary course of a business that includes lending money, which will not apply to a private-practice company.
- Loans to a trustee of a charitable trust, applied only to the purposes of that trust.
- Loans of not more than £15,000 in aggregate to a director or employee who works full time for the company and does not have a material interest in it. Section 457 defines a material interest as more than 5% of the ordinary share capital, so this limb will not cover you as the owner, though it can cover a full-time employed spouse holding a small stake.
What is the s455 rate for a loan made on or after 6 April 2026?
35.75%. That is the rate on every loan made on or after 6 April 2026, and it replaced the 33.75% that still applies to loans made in 2025/26.
Section 455 is set by reference to the dividend upper rate, which is why it moved with Finance Act 2026 section 4. Where a draw should have been salary or a declared dividend in the first place, the salary versus dividend guide prices both routes.
The rate is fixed by when you made the loan, not by when the charge falls due. A draw in March 2026 carries 33.75% even though the payment date lands in 2027. A draw in May 2026 carries 35.75%. If your year end straddles 6 April 2026 and you took cash on both sides of it, the loan account carries two rates and has to be split by draw date.
Why is section 458 relief deferred rather than instant?
Section 458 lets the company reclaim the section 455 tax once the loan is repaid, released or written off. It does not refund the money when the loan is settled. Relief becomes available nine months and one day after the end of the accounting period in which the repayment falls, and the company then has four years from that date to claim.
The gap that opens up is worth up to 12 months of the company's cash. A company with a 31 March year end and a loan outstanding at 31 March 2027 pays the charge on 1 January 2028. Repay during the year to 31 March 2028 and the refund is available from 1 January 2029. That cost of capital is the part a straight rate comparison misses.
Can you repay and redraw to escape the charge?
No, and the provision to cite has changed. The bed-and-breakfasting sections that most published guidance still quotes were repealed with effect from 30 October 2024 and replaced by CTA 2010 section 464ZA. Anything resting on the old numbering is quoting law that no longer exists, and the substance survived the change intact, with both thresholds in place.
- The 30-day rule. Where qualifying repayments of £5,000 or more and fresh chargeable payments of £5,000 or more fall inside any 30-day period, the repayment is matched against the new borrowing instead of the old loan, so no relief arises on it.
- The arrangements rule. Where £15,000 or more is owed and there are arrangements for replacement payments of £5,000 or more, the same matching applies however many days you leave between the two movements.
A genuine repayment with no plan to redraw qualifies for relief. A circular transaction does not, and the second limb means waiting 31 days does not rescue a plan you had already made.
When does an overdrawn directors loan account create a benefit in kind?
A second charge runs alongside s455 tax on larger balances. ITEPA 2003 section 175 charges the interest you are not paying as a taxable benefit in kind on you personally, and section 180 exempts it only while the balance stays at or below £10,000 for the whole tax year, so an overdrawn balance that exceeds £10,000 at any point in the tax year brings the charge into play. The test has no 30-day limb, contrary to a good deal of published guidance.
The benefit is measured at HMRC's official rate of interest, 3.75% for 2026/27 and unchanged from 2025/26, applied to the average balance outstanding. HMRC has been able to change the official rate in-year since April 2025, so check the rate in force before you rely on it. You pay income tax on that benefit at your marginal rate through self-assessment.
The reporting falls on the company. It files a P11D for you and a P11D(b) declaring the total by 6 July following the tax year, then pays employer Class 1A National Insurance at 15% by 22 July, or by 19 July if it pays by cheque. A late P11D(b) costs £100 per 50 employees for each month it is outstanding.
The timing and the threshold both carry traps. P11Ds run on the tax year to 5 April while your accounts run to their own year end, so a 30 September year end means pulling the balance out mid-year to report it. Drawing £9,900 at a time does not help either, because the section 180 exemption only holds while the balance stays at or below £10,000 throughout the year, whatever the size of each draw.
Free Incorporation and private practice tool
Model your tax saving from incorporating your private practice
Our interactive tool is built for a larger screen. Tell us your situation and one of our medical accountants who works with doctors will pick it up, so a specialist medical accountant there can send your figure and the sensible next step. Enquiring commits you to nothing.
Want this checked against your specific situation?
Leave your details and a one-line summary. One of our medical accountants who works with doctors reads it and makes contact. Enquiring commits you to nothing.
What does a £40,000 loan account actually cost?
Take Dr A, an illustrative consultant whose private-practice company has a 31 March year end. On 1 July 2026 she moves £40,000 from the company account to her own without declaring a dividend, and the full balance is still there at the year end on 31 March 2027.
The loan was made after 6 April 2026, so the rate is 35.75%: £40,000 x 35.75% = £14,300. That falls due nine months and one day after 31 March 2027, which is 1 January 2028.
The balance passed £10,000, so a benefit in kind arises as well, at 3.75% on the average balance. Held for a full year, £40,000 x 3.75% = £1,500 of benefit, and £1,500 x 15% = £225 of employer Class 1A National Insurance.
| Item | Figure | Notes |
|---|---|---|
| Overdrawn balance at 31 March 2027 | £40,000 | Drawn 1 July 2026, so a 2026/27 loan |
| s455 rate | 35.75% | Loans made on or after 6 April 2026 |
| s455 charge | £14,300 | Due 1 January 2028, being 9 months and 1 day after 31 March 2027 |
| Benefit in kind, full-year basis | £1,500 | £40,000 at the 3.75% official rate of interest; P11D by 6 July 2027 |
| Employer Class 1A on the benefit | £225 | 15% of £1,500, payable by 22 July 2027 |
| Loan repaid in full 1 October 2027 | £40,000 | Falls in the year to 31 March 2028 |
| Section 458 relief available | 1 January 2029 | 9 months and 1 day after 31 March 2028, so £14,300 sits with HMRC for 12 months |
Change one input and the answer moves sharply. Repay before 1 January 2028 and the £14,300 never leaves the company at all, which is why the repayment date matters more than the rate. The loan route does not save tax; it defers it badly.
How charging interest works: the directors loan interest rate and form CT61
You can remove the benefit in kind by paying the company interest. The directors loan interest rate that matters is HMRC's official rate of interest, 3.75% for 2026/27: charge at least that on the balance and no taxable benefit arises, so no P11D entry and no Class 1A cost.
The interest you pay is yearly interest in the company's hands, and that brings its own machinery. Under ITA 2007 section 874 the company must deduct income tax at the basic rate, 20% for 2026/27, from the interest it receives from you. It reports the deduction on form CT61 for the quarterly return period and, under section 949, must deliver that return within 14 days of the period end.
So this is a real choice and never a formality. Paying the benefit in kind costs Class 1A and a P11D. Charging interest costs a CT61 every quarter it arises, and the interest is taxable income for the company. The P11D route carries less administration, but on a large balance held for a long period the interest route is worth pricing.
How to build a directors loan account in credit instead
A director's loan account in credit is the position you want, because repaying it costs nothing. It comes from either introduced capital or incorporation consideration.
The first is introduced capital: money you lend the company at formation or later, or expenses you have paid personally and not yet been reimbursed. The company owes you that sum and can return it at any time free of income tax and National Insurance, because it is your own money coming back.
The second is section 162 incorporation consideration. When you incorporate a private practice, part of the consideration for the transfer can be credited to your loan account, leaving a genuine in-credit balance you can draw down later without income tax.
The trade-off is direct: every pound taken outside shares reduces the gain deferred under section 162. The apportionment is set out on the guide to section 162 incorporation relief, and the order of the steps themselves sits on the practice incorporation guide.
Keep the credit genuine and documented, as a loan agreement or as incorporation consideration. If the cash simply builds up inside the company instead, the options for it are set out on the guide to surplus cash in a medical limited company.
What happens if the loan is written off or the company goes into liquidation?
Writing the balance off does release the company's section 455 tax, but it hands the cost to you. ITTOIA 2005 section 415 charges you income tax on the amount released, and HMRC treats a loan written off as a payment of earnings liable to Class 1 National Insurance, so contributions land on top of the income tax. A write off is therefore the most expensive exit from an overdrawn account.
Liquidation is harder still. An overdrawn loan account is a debt owed to the company, which makes it an asset in the liquidation, and the liquidator can demand that you repay it in full whatever the state of your own finances. Closing a company with an overdrawn account does not clear the account.
One further rule bites if you wind up the company and carry on similar private work. ITTOIA 2005 section 396B, inserted by FA 2016 section 35 for distributions made on or after 6 April 2016, taxes a winding-up distribution at dividend rates once four conditions are all met. The condition that catches doctors is resuming the same or a similar trade within two years of the distribution, and the full four-condition treatment sits on the guide to surplus cash in a medical limited company.
How the loan account interacts with your NHS pension
Loan account drawings are neither salary nor dividends. They are the repayment of a debt, so they produce no NHS pension accrual under any certification route, and no company-derived income is NHS-pensionable in any event.
That matters for the full cost of running private income through a company. If your NHS post is your only pensionable employment, taking cash out as a loan carries a double charge: the s455 tax on the company, and a year of nothing added to your pension. Every pound left inside the company earns no accrual either.
An employer pension contribution paid directly by the company is often the better lever, because it is deductible for corporation tax on a paid basis and carries no National Insurance on either side. It is limited by your annual allowance, £60,000 for 2026/27 with a taper for higher earners, which the NHS pension annual allowance calculator works through.
The interaction with NHS scheme growth is covered on the guide to pension contributions and tax relief, and the corporation tax position itself sits on corporation tax for a medical company.
The directors loan rules that catch consultants out
- Drawing informally and finding out later. Any transfer that is not salary or a declared dividend defaults to a loan, and the balance often surfaces only when the year-end accounts are drafted, by which point the nine-month-and-one-day clock is well advanced.
- Missing the £10,000 threshold. The benefit in kind arises the moment the balance creeps past £10,000 at any point in the year, and a late P11D brings penalties and interest on top of the Class 1A.
- Budgeting as though section 458 relief is immediate. It is available nine months and one day after the accounting period of repayment, so a cash-flow plan built on a prompt refund will be a year out.
- Repaying and redrawing. Section 464ZA matches the repayment to the new borrowing, and the arrangements limb catches the plan even where the calendar looks clean.
- Comparing the headline rates only. The real cost includes the deferred refund, the P11D and Class 1A, and the pension accrual you give up on anything not taken as pensionable pay or as an employer contribution.
- Working from repealed rules. A lot of published material still rests on the anti-avoidance provisions that were repealed on 30 October 2024 and replaced by section 464ZA. Anyone advising you from that material is quoting law that no longer exists.
A monthly reconciliation of the loan account removes most of this. The decision that drives every consequence above is a single one: whether cash leaves the company as a loan or as a properly declared distribution.