The £10,000 threshold and beneficial interest
As a director-shareholder of your own limited company, you can borrow money from the company — but the tax treatment depends heavily on the amount, how long you take to repay, and whether interest is charged. This guide covers the £10,000 benefit-in-kind threshold, s455 corporation-tax charge on overdrawn director's loans, the nine-month repayment rule, and the practical mechanics of using company loans sensibly.
The £10,000 threshold and beneficial interest
Any director's loan that stays under £10,000 throughout the tax year carries no benefit-in-kind (BIK) — you can borrow it interest-free with no personal tax consequence. Above £10,000, HMRC treats the interest 'saving' as a benefit and applies the official rate (currently 2.25%) to the loan balance. That benefit is taxed as employment income on your P11D.
Charging the loan interest yourself, at or above HMRC's official rate, avoids the BIK. The company pays 20% CT on the interest income; you pay income tax on the payments received.
The s455 charge and the nine-month rule
If a director's loan remains outstanding nine months and one day after the company's year-end, HMRC charges the company an additional Corporation Tax charge of 33.75% (matches the higher-rate dividend rate) on the outstanding balance under Section 455 CTA 2010.
The s455 charge is refundable — repay the loan and reclaim the CT, but not until nine months after the year-end in which repayment happened. It's a substantial cashflow impact even though eventually refundable. Most directors either repay within nine months, or refinance the loan into salary/dividends before the deadline.
Common freelance scenarios
Short-term overdraft (a few months): fine, no BIK if under £10k, no s455 if repaid within nine months of year-end.
Long-term stake in a house purchase using company funds: expensive — hits both BIK and s455 unless paid interest at HMRC's official rate. Almost always better to declare a dividend, pay dividend tax, and then use the personal money.
Emergency personal expense: acceptable one-off tool; avoid making it a habit.
Worked example
Loan outstanding at year-end: £25,000. Nine months after year-end = 1 January the following year. The £25,000 was repaid on 1 January — just in time, so no s455 charge. But: the loan exceeded £10,000 for 8 months. Beneficial-interest calculation: £25,000 × 2.25% × 8/12 = £375 BIK. Reported on P11D; taxed as employment income. If Sarah had waited until 2 January to repay: s455 charge of £25,000 × 33.75% = £8,437.50 payable with the CT, only recoverable much later.
Reference table
| Scenario | BIK? | s455 charge? | Practical implication |
|---|---|---|---|
| Under £10,000, repaid within 9 months of year-end | No | No | Zero tax cost |
| Under £10,000, still outstanding 9m+ after year-end | No | Yes, 33.75% of amount | Recoverable but big cashflow hit |
| Over £10,000, no interest paid | Yes, on official rate | Depends on 9-month timing | P11D reporting; possible s455 |
| Over £10,000, personal interest paid at official rate | No | Depends on 9-month timing | CT on company; income tax on you |
| Written off by company | Treated as dividend or salary | N/A | Full personal tax due |
Taking a director's loan — checklist
- Confirm the company has cash flow to lend (not just profit on paper)
- Company minutes documenting the loan approval
- Loan agreement between director and company (best practice)
- Keep the balance under £10,000 if avoiding BIK is the goal
- Set a repayment date within 9 months of the company's next year-end
- Track balance monthly — small over-runs compound to s455 problems
- If long-term > £10,000: pay interest at HMRC's official rate
- Speak to accountant before writing off any director loan
HMRC has anti-avoidance rules for repayment-and-redraw of £5,000+ within 30 days. If they identify a pattern of repaying to avoid s455 and then re-borrowing, the s455 charge applies as if the repayment hadn't happened.
Currently 2.25% for 2025/26. Set by HMRC and changes periodically. Check the current rate on gov.uk before setting up a formal loan-interest arrangement.
No. Salary is taxable employment income processed via PAYE. A loan is not income — it's money you owe back to the company. Only when the loan is written off or converted to salary/dividend does it become taxable.
Legally yes, but usually inefficient. Over £10k triggers BIK; outstanding at 9m+ after year-end triggers s455. Most directors instead declare a large dividend, pay dividend tax, and use post-tax money — which is cleaner and avoids the ongoing loan-tax complications.
You can't lend what you don't have — the balance sheet must support the loan. If the company only has £5k in the bank, you can't lend yourself £25k regardless of profit. Distributable profit and available cash are two different things.
Sources & official references
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This guide is general information based on UK rules for the 2025/26 tax year. It is not personal tax or legal advice. For decisions affecting your tax position or legal exposure, consult a qualified accountant or solicitor.