The situation
A busy company director had drawn money from the business through the year to cover personal costs, treating it loosely rather than as formal salary or dividends. By the year end the director loan account was significantly overdrawn.
The problem
An overdrawn loan not repaid within 9 months and 1 day of the year end triggers a temporary corporation tax charge of 33.75% of the balance. The director was also close to the £10,000 threshold that creates a benefit in kind. Left alone, it would have cost the company thousands in avoidable tax.
What we did
- Reconstructed the account. We worked through the year to establish the true overdrawn balance.
- Checked the profits. We confirmed the company had enough retained profit to declare a dividend.
- Cleared it before the deadline. We voted a dividend with the correct paperwork to clear the balance in good time, and set the director up with an efficient salary and dividend plan going forward.
What changed
The s455 charge was avoided entirely, the benefit in kind risk was removed, and the director now takes a planned, documented salary and dividend mix each month. The loan account is tracked so it never drifts overdrawn again.
What this shows
A director loan account is a useful tool, but an overdrawn balance left past the deadline is expensive. Planning repayment and taking pay properly avoids the charges completely.
Loan account creeping overdrawn?
We track your loan account, plan repayments before deadlines, and set up an efficient way to pay yourself, so the s455 and benefit in kind charges never bite.