What is S455 tax?

What is S455?

S455 is a Corporation tax for directors when money is borrowed from a limited company, otherwise known as a director’s loan.

A director’s loan is classed as money taken out of the company that’s not a salary, dividend, or money you’ve paid into or loaned the company; it can be taken out by either you or close family members.

People will usually borrow from their company if they need tiding over for a certain period of time, or find themselves having to pay out for an unexpected bill.

How does S455 tax work?

The tax implications of taking money out of your company are as follows:

If the loan is paid back within nine months of the end of your Corporation Tax accounting period, then:

• You’ll pay Corporation Tax at 33.75% of the original loan (or 32.5% if the loan was made before the 6th of April 2022).
• After repaying the loan, you can reclaim Corporation Tax (but not interest).

If the loan is not paid back within nine months of the end of your Corporation Tax accounting period, then:

• You’ll pay Corporation Tax at 33.75% of the original loan (or 32.5% if the loan was made before the 6th of April 2022).
• Interest on the Corporation Tax will be added until either the Corporation Tax is paid, or the loan is repaid.
• After repaying the loan, you can reclaim Corporation Tax (but not interest).

Any money borrowed from the company will need to be recorded in a ‘director’s loan account’ and all information will need to be included on the balance sheet of your annual accounts.

It is also possible to lend money to your company, and in this case, your company would not be subject to S455 tax.

Do I need an accountant?

A good accountant will be knowledgeable and up-to-date when it comes to all taxes affecting limited company contractors, and so S455 is something they’ll be able to inform and advise you on.

An accountant will also be able to help with keeping you on top of your financial liabilities and deadlines, ensuring you remain compliant, and they can provide you with the type of useful financial advice that you might not otherwise be aware of, which could potentially save you money in the long run.

If you already have an accountant and you’re not happy with them, take a look at our Is it Easy to Switch Accountants? page for help and advice.

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