S455 Tax | Rates, Director’s Loans, and Reclaim Process for UK

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S455 Tax | Rates, Director’s Loans, and Reclaim Process for UK


S455 Tax is a key consideration for UK businesses, particularly those involving director’s loans. Understanding its implications can help businesses comply with tax obligations and potentially reclaim overpaid amounts. This article breaks down S455 Tax, its rates, how it applies to director’s loans, and the process of reclaiming it.

Photo by Kelly Sikkema on Unsplash

What is S455 Tax?

S455 Tax is a corporation tax charged on director’s loans that remain outstanding at the end of a company’s accounting period. It is designed to prevent companies from avoiding personal income tax and National Insurance contributions by taking loans instead of salaries or dividends.

This tax applies specifically to close companies, which are typically controlled by five or fewer shareholders or any number of directors.

How Does S455 Tax Apply to Director’s Loans?

Definition of a Director’s Loan

A director’s loan occurs when a director withdraws money from the company that is not classified as salary, dividend, or expense reimbursement. These loans are considered separate from the director’s remuneration and can trigger S455 Tax if left unpaid.

Conditions for S455 Tax Applicability

  1. Outstanding Balance: S455 Tax applies if a director’s loan remains unpaid nine months after the end of the company’s accounting period.
  2. Thresholds and Exemptions: If the loan amount is less than £10,000 and used for specific purposes (e.g., temporary personal needs), it might avoid tax implications. However, larger amounts are subject to stricter scrutiny.

S455 Tax Rates

The current S455 Tax rate is 33.75% of the outstanding loan balance, aligning with the higher dividend tax rate. This rate applies to loans unpaid by the due date for corporation tax.

How to Reclaim S455 Tax

Conditions for Reclaiming S455 Tax

Companies can reclaim S455 Tax if the director repays the loan or if the company writes off the loan. The repayment must occur within four years of the end of the accounting period in which the tax was paid.

The Reclaim Process

  1. Loan Repayment or Write-Off: Ensure the loan is repaid in full or formally written off by the company.
  2. File the CT600A Form: Submit the CT600A supplementary form along with the company’s Corporation Tax Return.
  3. Claim Through the Next Corporation Tax Return: The reclaim should be included in the subsequent Corporation Tax Return, reducing the company’s liability.
  4. Await HMRC Approval: HMRC reviews the claim and typically issues the refund within 30 days if all documentation is in order.

Avoiding S455 Tax Pitfalls

Proper Loan Management

  • Record Keeping: Maintain accurate records of director’s loans, repayments, and their purposes.
  • Plan Repayments: Ensure loans are repaid within the nine-month grace period to avoid triggering S455 Tax.

Use Alternative Approaches

  • Dividends and Salaries: Instead of loans, consider taking dividends or salaries, which are subject to different tax rules.
  • Professional Advice: Consult an accountant or tax advisor to structure withdrawals in a tax-efficient manner.

Final Thoughts

S455 Tax is a crucial element of director’s loan management for UK companies. By understanding its rates, conditions, and reclaim process, businesses can minimize liabilities and ensure compliance. Proper planning and professional guidance can go a long way in mitigating the financial impact of S455 Tax.

For tailored advice on managing director’s loans and reclaiming S455 Tax, consult a qualified accountant or tax professional.

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