Section 455 Tax: Can You Avoid It?

February 20, 2025

Section 455 Tax: Can You Avoid It?

Section 455 applies to unpaid loans directors take from their companies. It’s designed to stop directors from avoiding taxes like those on salaries or dividends.


The Rule: Repay any director’s loan within 9 months and 1 day after your company’s financial year-end to avoid S455 tax.

Example: If your year-end is the 31st December and you borrow money in December, make sure you repay it by the 1st October next year to skip the tax charge.



What’s the Tax Charge?


The S455 tax rate is 33.75% for loans taken after April 6, 2022. For example, an unpaid £20,000 loan means a £6,750 tax charge.

Loans under £10,000 are usually exempt, but borrowing more will trigger the tax. Stay on top of what you owe to avoid surprises!


How to Reclaim S455 Tax


Good news: S455 tax isn’t permanent. You can reclaim it once the loan is repaid or converted into a salary or dividend.

  • Repay the Loan: Record the repayment in your company accounts to show it’s resolved.
  • Use Dividends: If you’re a shareholder, you can offset the loan by declaring it as a dividend. Just watch out for personal tax liabilities.
  • Filing for a Refund: Use the CT600A form (if repaid within two years) or the L2P form (after two years). HMRC may take a while, so keep detailed records to avoid delays.


Tips to Avoid S455 Tax


  1. Keep Track of Loans: Monitor how much you borrow and avoid going over £10,000 unless necessary.
  2. Avoid Quick Repay-and-Borrow Moves: HMRC frowns on “bed and breakfasting”—repaying a loan only to take it out again within 30 days.
  3. Get Professional Advice: An accountant can help you choose tax-efficient options like dividends or bonuses.
  4. Plan for Insolvency Risks: If your company stops trading, unpaid loans could become your personal tax liability.



|If Loans Go Unpaid


Unpaid loans may be treated as personal income, leading to income tax and National Insurance charges. HMRC could also pursue you personally if the company can’t repay.

 

Got questions about director’s loans or S455 tax? Reach out to us for expert advice—let’s sort it together!




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