Tax Implications of Borrowing from Your Limited Company
1. Section 455 Tax (Corporation Tax Surcharge)
If you borrow money and don’t repay it within 9 months and 1 day after the end of the company’s accounting period, the company must pay Section 455 tax at 33.75% of the outstanding loan amount (as of 2025/26).
This is payable to HMRC and can be reclaimed — but only once the loan is repaid.
Example: If you borrow £10,000 and don’t repay it on time, the company owes £3,375 in Section 455 tax.
Learn more on GOV.UK – Corporation Tax on director’s loans
2. Benefit in Kind (BIK) Tax for the Director
If the loan exceeds £10,000 at any point in the year and no interest (or low interest) is charged, HMRC treats this as a benefit in kind. As a result:
- You’ll need to report it on a P11D form
- You may owe personal Income Tax on the loan benefit
- The company must pay Class 1A National Insurance on the benefit
Interest is considered adequate if it’s at least HMRC’s official rate (currently 2.25% as of 2025). Anything lower is a taxable perk.
Avoiding Tax on Director Loans
To minimise your tax exposure:
- Repay the loan within 9 months to avoid the 33.75% surcharge
- Charge interest at HMRC’s official rate to avoid BIK tax
- Avoid multiple short-term loans that appear to dodge tax (called “bed and breakfasting” now restricted by anti-avoidance rules)
Note: If you repay over £5,000 and borrow again within 30 days, HMRC may treat this as if you never repaid the original loan.
Alternatives to Borrowing from the Company
Before taking out a director’s loan, consider these alternatives:
- Take a dividend (if the company has enough retained profits)
- Increase your salary (note the added PAYE and NICs)
- Reclaim expenses (e.g. home office use, travel costs)
- Use existing capital you’ve lent to the company
Each has its own tax implications get advice from an accountant to weigh the options.
What Happens If the Loan Isn’t Repaid?
If the loan remains unpaid:
- The company keeps paying the 33.75% tax every year it remains outstanding
- It can affect the company’s ability to declare dividends or secure financing
- HMRC may challenge the arrangement as disguised remuneration, especially if there’s no clear plan to repay
In insolvency situations, the liquidator may demand repayment of the overdrawn DLA personally.
Recordkeeping and Reporting Requirements
To stay compliant:
- Keep a clear, up-to-date director’s loan account
- Record loan agreements in board meeting minutes (even if you’re the only director)
- Include loan information in your company accounts and CT600 tax return
- File P11D forms for any BIK, and pay Class 1A NICs accordingly
Failing to disclose director loans accurately can lead to penalties, interest, and HMRC investigations.
Example Scenario
You borrow £15,000 in July 2025, and your company year-end is 31 December 2025.
- If the loan is not repaid by 1 October 2026, your company must pay £5,062.50 in Section 455 tax
- If you don’t charge interest, the £15,000 loan will also be taxed as a benefit in kind
- You must report this on your P11D by 6 July 2026, and the company pays Class 1A NICs by 22 July 2026
Should You Borrow from Your Limited Company?
Borrowing from your own limited company can offer flexibility, especially if you need short-term personal cash flow. But it must be handled carefully, with a full understanding of the tax rules and deadlines involved.
Pros:
- Quick access to funds
- Can be repaid without tax if managed correctly
Cons:
- Risk of 33.75% tax surcharge
- Extra reporting admin
- Potential personal tax implications
How Accounting Wise Can Help
At Accounting Wise, we support UK directors with:
- Clear advice on the tax-efficient use of director’s loans
- Filing CT600, P11D, and Self Assessment returns correctly
- Managing your company’s cash flow and compliance
Don’t fall into a tax trap. If you’re considering borrowing money from your limited company or already have get in touch for tailored support.
