Running a limited company? Then you need to know about S455 Tax – the sneaky little tax that pops up when directors or shareholders borrow money from the business.
But don’t worry, we’re here to break it down in plain English so you can avoid unexpected tax bills and keep more of your hard-earned cash where it belongs!
What is S455 Tax and Why Should You Care?
S455 Tax is HMRC’s way of making sure company funds aren’t being used as personal piggy banks without paying the right tax.
If you take money out of your company as a loan and don’t pay it back within nine months and one day after your company’s financial year-end, you’ll get hit with a 33.75% tax charge on the outstanding amount.
How Does it Work?
- Borrow money from your company and repay it within nine months? No problem – no tax due.
- Leave it unpaid? Your company has to pay 33.75% of the loan amount in S455 Tax.
- The silver lining? You can reclaim the tax once the loan is repaid – but it can take time, so best to avoid it in the first place!
Does S455 Tax Apply to You?
If you’re a director or shareholder of a limited company and you take a loan from your business, this tax could affect you.
🚫 Not a worry for sole traders or partnerships – only applies to limited companies.
✅ Applies if you take money out of the company as a loan instead of salary or dividends.
How Much S455 Tax Will You Pay?
It’s a simple calculation:
- S455 Tax Rate: 33.75% of any outstanding director/shareholder loan.
- Example: Borrow £10,000 and don’t repay it in time? Your company owes £3,375 in tax.
- If you repay the loan later, you can claim the tax back – but it won’t be instant!
Calculating the liability involves reviewing all director and shareholder loans, identifying outstanding balances, and ensuring accurate repayment records. Professional bookkeeping and accounting software can simplify this process.
How to Avoid S455 Tax (Because No One Likes Extra Bills!)
Repay Loans on Time – The easiest way to dodge the charge.
Use Dividends Instead – If the company has profits, dividends can be a tax-efficient way to take money out.
Consider a Director’s Bonus – If it makes sense, a bonus (subject to PAYE and NIC) could clear the loan.
Plan Your Finances – Work with an accountant to avoid unexpected tax headaches.
What Happens if You Don’t Pay?
Ignoring S455 Tax could mean:
- Penalties and interest from HMRC.
- More complex tax issues down the line.
- A messy balance sheet that causes headaches at year-end.
Best to stay ahead of it and keep things tidy!
A Real-Life Example (Because Numbers Make More Sense in Action)
Sarah is a director of her own limited company. She takes a £15,000 loan in June, and her company’s financial year ends in December.
If she doesn’t repay the loan by September (nine months later), the company must pay £5,062.50 in S455 Tax.
Her options?
- Repay the loan on time.
- Use dividends to clear it.
- Plan ahead and avoid borrowing from the company altogether.
Expert Tips for Navigating S455 Tax Like a Pro
- Keep in touch with your accountant – they’ll help you stay on top of things.
- Regularly check your director’s loan account to avoid surprises.
- If dividends are an option, plan them wisely to clear any outstanding loans.
- Use accounting software to monitor loans and repayments.
- Set reminders for key deadlines so you don’t get caught out.
- If things get tricky, get expert advice before HMRC comes knocking!
Need some help?
Need an accountant who can help you stay on top of your taxes and plan ahead? Complete our quick questionnaire and book a discovery call with us today – let’s make tax one less thing for you to worry about!
FAQ
- What is the threshold for being subject to the S455 Tax?
- Any loan taken by a director or shareholder that remains unpaid beyond the nine-month deadline.
- Are there exemptions or relief options available for the S455 Tax?
- Repayments made before the deadline can reduce or eliminate the liability.
- How often must the S455 Tax be filed, and what are the key deadlines?
- It is filed annually as part of the Corporation Tax return, with payment due nine months and one day after the accounting period ends.
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