If you’ve taken money out of your limited company casually, outside salary or dividends, you may already have a director’s loan account, even if you’ve never called it that. And if the balance sits there long enough, HMRC can charge your company Section 455 tax.

That’s where proactive advice matters. TurnerBerry helps Bristol and Cardiff directors keep their director’s loan accounts under control with plain-English guidance, so you can spot the issue early, avoid unexpected S455 tax charges, and reduce the risk of benefit-in-kind problems.

This guide covers when a director’s loan account becomes a tax problem, how much S455 tax can cost, the deadlines that matter, and what to check before your next year-end.

The key numbers – £10,000 threshold: Keep the loan below this and you usually avoid a benefit-in-kind charge. – 9-month deadline: Repay within nine months and one day of your company’s year-end or the company may owe S455 tax. – 33.75% S455 rate: The tax charge on any outstanding director’s loan balance after the repayment deadline. – 3.75% official interest rate for 2025/26 and 2026/27: Charge yourself at least this on loans over £10,000 to avoid a benefit-in-kind charge.

What Is a Director’s Loan Account?

Say you move £3,000 from the company bank account to cover a personal credit card bill. That £3,000 does not disappear into “owner drawings”. It sits on a running record called a director’s loan account until you repay it or clear it properly.

A limited company is legally separate from its directors. Money you take from the company, outside salary, dividends, or reimbursed business expenses, is treated as a loan from the company to you. Whether you intended it that way or not.

Your director’s loan account, often shortened to DLA, can be:

• Overdrawn, where you owe money to the company.
• In credit, where the company owes money to you.
• At nil, where neither side owes the other anything.

A DLA can include personal cash withdrawals, personal bills paid by the company, business expenses you paid personally, and money you lend into the company from your own funds.

There is also a connected-person point that catches a lot of directors off guard. If your company is a close company, which most owner-managed limited companies are, payments made to family, friends, or business associates may also need recording through the director’s loan account. HMRC treats those connected-person payments the same way as money paid directly to you.

Loans above £10,000 also require shareholder approval by ordinary resolution under Companies Act 2006 sections 197 to 214. Director’s loan account balances must be disclosed in the company’s statutory accounts under section 413.

The Rules: What HMRC Requires

Here is what actually matters in practice.

The £10,000 Benefit-in-Kind Threshold

If your director’s loan balance goes above £10,000 at any point in the tax year, it can become a benefit in kind.

If the company charges no interest, or interest below HMRC’s official rate, the shortfall is treated as a taxable benefit. It is reported on form P11D, and the company pays Class 1A National Insurance at 15% on the value of that benefit.

The £10,000 threshold applies to the total balance at any point in the year. Not just one withdrawal.

Take £6,000 in April and another £5,000 in July, and you have crossed it, even if neither payment felt significant at the time. Quietly, the tax position has changed.

The Nine-Month Repayment Deadline

An overdrawn director’s loan account must be repaid within nine months and one day of the end of the accounting period in which the loan was taken.

The clock starts from your accounting period end date, not from the date you took the loan.

If your company year-end is 31 March and your DLA is overdrawn on that date, the repayment deadline is 1 January the following year.

Miss that deadline and the company pays Section 455 tax at 33.75% of the outstanding balance. Repay part of the loan before the deadline and S455 tax applies only to the amount still outstanding.

S455 tax is refundable once the loan is repaid in full, but not immediately. The company claims it through form CT600A, and the repayment is usually due nine months after the end of the accounting period in which the loan was repaid.

In practice, that can mean waiting 18 months or more after the money has gone back in. HMRC does not pay interest on that refund. Not ideal for cash flow.

The 30-Day Anti-Avoidance Rule

HMRC will not accept a last-minute repayment followed by an immediate redraw as a tidy way around S455 tax.

If a loan of £5,000 or more is repaid, and a new loan of £5,000 or more is taken within 30 days, the repayment is matched against the new loan. The original loan is treated as if it was never repaid for S455 purposes.

There is also a stricter rule where total loans and repayments exceed £15,000 in the same window. In that case, the chargeable amount becomes the greater of the amount repaid and the amount redrawn.

The short version: clearing the balance needs to be genuine. A quick in-and-out usually does not work.

How to Avoid the Benefit-in-Kind Charge on Larger Loans

If you need to borrow more than £10,000 from your company, the benefit-in-kind charge can usually be avoided by charging interest at or above HMRC’s official rate.

For 2025/26 and 2026/27, that rate is 3.75%.

Have a written loan agreement in place setting out the amount borrowed, the interest rate, and the repayment terms. It keeps the arrangement clean and gives you evidence if HMRC asks how the loan was treated.

On a £15,000 director’s loan, interest at 3.75% for a full year costs £562.50. That is often far less painful than leaving the loan unmanaged and ending up with both S455 tax and benefit-in-kind reporting to deal with.

Your accountant can help you work out whether charging interest, repaying the loan, or clearing it another way makes most sense for your specific position.

A Worked Example

A company has a 31 March year-end. In October 2025, the director withdraws £15,000 for personal use. The director’s loan account becomes overdrawn by £15,000.

The accounting year ends on 31 March 2026, and the loan is still outstanding. The repayment deadline is 1 January 2027.

If that date passes without repayment, the company owes:

£15,000 x 33.75% = £5,062.50 in S455 tax

Because the loan exceeded £10,000 and no interest was charged, there is also a benefit in kind. Using the average method, with an opening balance of £0 on 6 April 2025 and a closing balance of £15,000 on 5 April 2026:

• Average balance: £7,500
• Benefit in kind: £7,500 x 3.75% = £281.25
• Director’s income tax at 40%: £112.50
• Company Class 1A National Insurance at 15%: £42.19

The director repays the full £15,000 in October 2026. The company can claim the S455 refund through CT600A, but the earliest refund date is 1 January 2028, over a year after the money went back in.

This is exactly the kind of scenario TurnerBerry can flag before the nine-month deadline, so you can plan ahead before the charge lands.

Charge	Amount	Paid by
S455 corporation tax, refundable	£5,062.50	Company
Benefit-in-kind income tax at 40%	£112.50	Director
Class 1A National Insurance on benefit in kind	£42.19	Company
Total non-refundable cost	£154.69
Total cash tied up, refundable	£5,062.50

Had the loan stayed below £10,000 and been repaid before 1 January 2027, there would have been no S455 charge and no benefit-in-kind reporting at all.

Clearing an Overdrawn DLA

The most common approach is to declare a dividend or bonus at year-end and offset it against the balance.

A dividend does not have to land in your personal bank account first. The company can declare it and credit it directly against the overdrawn DLA as a bookkeeping entry.

But the dividend still needs to be valid. That means genuine distributable reserves, board minutes, and a dividend voucher.

The date matters more than most directors realise. A dividend declared in March falls into a different personal tax year from one declared in April. Getting this wrong shifts the income tax liability into an unintended year. Annoying, and very avoidable.

A bonus can also clear an overdrawn DLA, but the tax treatment differs. A bonus is subject to income tax and employer National Insurance, although the company can usually deduct the full cost from its taxable profits.

Which route is better depends on your personal tax position, the company’s profit, and whether there are sufficient distributable reserves for a lawful dividend. Your accountant can help you compare the options before you commit to one route.

If you have cleared an overdrawn DLA with a dividend for two or more consecutive years, speak to your accountant before doing the same again. HMRC has challenged repeated patterns under the settlements legislation and disguised remuneration rules.

Credit vs Overdrawn: The Key Difference

An overdrawn director’s loan account means you owe money to the company. This is where S455 tax, benefit-in-kind charges, repayment deadlines, and anti-avoidance rules come in.

A credit director’s loan account means the company owes money to you. You can usually draw down that balance without triggering a tax charge, and the company can pay interest on it, which you receive as savings income and pay tax on at your marginal rate.

Your accountant can help you monitor the balance and plan the safest way to handle money moving between you and the company.

The difference matters most if the company runs into financial difficulty.

An overdrawn DLA is an asset of the company. An insolvency practitioner can pursue you personally for repayment.

A credit DLA puts you in a very different position. You become an unsecured creditor, with a claim for repayment but no guarantee of recovering the money.

An Overdrawn DLA Is Manageable. An Ignored One Is Not.

Director’s loan accounts are not automatically a problem. Plenty of directors use them from time to time.

The issue is timing.

The nine-month deadline, S455 charge, benefit-in-kind rules, anti-avoidance provisions, and dividend interactions can all catch you out if the balance goes unchecked. By the time the S455 charge lands, your options may already be narrower than they needed to be.

The good news is that it is manageable with the right timing.

If you are unsure where your director’s loan account stands, or want to know what needs to happen before your next year-end, get in touch.

At TurnerBerry, we will run through your director’s loan account with you, flag anything that needs action, and help you stay ahead of the deadline.

The UK VAT registration threshold is £90,000, a figure that has applied since April 2024. If you’ve been searching for a clear answer on when VAT registration becomes compulsory, you’re not alone. The threshold increased for the first time in seven years, and a lot of content online still references the old £85,000 limit.

This guide covers when VAT registration becomes mandatory, what happens if you miss the deadline, and whether registering voluntarily might make sense for your business.

The VAT Registration Threshold Explained

Since April 2024, businesses must register for VAT once taxable turnover exceeds £90,000. Taxable turnover includes standard-rated, reduced-rated, and zero-rated sales. Zero-rated supplies attract 0% VAT, but they still count towards the threshold. Exempt supplies, such as certain financial services and insurance activities, do not.

The important point: VAT uses a rolling 12-month test. Not your accounting year. Not the tax year. At the end of each month, you look back over the previous 12 months and check whether taxable turnover has gone above £90,000.

That test applies in the same way whether you’re a sole trader, a partnership, or a limited company.

A couple of separate rules are worth noting. Businesses in Northern Ireland acquiring goods from the EU worth more than £90,000 in a calendar year may need to register under different provisions. Overseas sellers supplying goods directly to UK consumers can have VAT obligations with no minimum threshold if they are responsible for the import process.

If either of those situations applies to you, check HMRC’s specific guidance rather than relying solely on the standard threshold.

One final note on the figure itself: the £90,000 threshold is current from April 2024. VAT thresholds can change, especially after Budgets or Spring Statements, so it is always worth checking HMRC’s latest guidance before making a decision.

Is the First £90,000 VAT-Free?

No, and this is the comparison that catches most people out.

VAT registration does not work like the personal allowance for income tax. You can trade up to £89,999 without being required to register, but once registration applies, VAT is charged on all taxable sales from your effective registration date.

Not just the amount above £90,000. Everything.

Once you’re VAT registered, every taxable sale falls within the VAT regime. If your business makes only exempt supplies, those sales do not count towards the threshold, although businesses making solely exempt supplies generally cannot reclaim VAT on their costs either.

Mandatory VAT Registration: When It Becomes Compulsory

There are two main tests.

The backward-looking test

At the end of any calendar month, if your taxable turnover for the previous 12 months exceeds £90,000, you must notify HMRC within 30 days of that month ending.

Your VAT registration normally becomes effective from the first day of the second month after the threshold was exceeded.

So if your rolling turnover exceeds £90,000 at the end of July, you notify HMRC by 30 August and registration takes effect from 1 September.

The forward-looking test

This applies when you know your taxable turnover will exceed £90,000 within the next 30 days alone.

If that happens, you must register by the end of that 30-day period and your registration is backdated to the date the expectation arose.

If you sign a contract on 10 March that will generate £95,000 of taxable turnover within the next month, your effective registration date is 10 March.

Other situations requiring registration

You must also register immediately if you take over a VAT-registered business as a going concern.

Businesses based overseas that make taxable supplies in the UK generally have to register regardless of turnover. The £90,000 threshold does not apply to non-UK businesses in the same way.

The exception route

Crossing the threshold does not always mean registration is unavoidable.

If your turnover exceeded £90,000 only temporarily and is expected to fall below the deregistration threshold of £88,000 within the following 12 months, you may be able to apply for an exception from registration.

HMRC will want evidence. That might include proof of a one-off contract, documentation showing a non-recurring event caused the spike, or clear records showing that turnover is unlikely to stay above the threshold.

Penalties for Late VAT Registration

Miss the registration deadline and it gets expensive quickly.

HMRC calculates the VAT that should have been charged from the date registration ought to have taken effect. It then applies a penalty based on how late you are.

Penalty rates are:

• Up to 9 months late: 10% of the VAT owed
• Between 9 and 18 months late: 20% of the VAT owed
• More than 18 months late: 30% of the VAT owed

Where HMRC believes the failure was deliberate, penalties can reach 100% of the VAT due.

The penalty is only part of the problem. You will also need to pay the VAT that should have been collected from customers, potentially covering several months of trading. Interest is charged on outstanding balances too.

If you contact HMRC before they contact you, known as an unprompted disclosure, penalties can be reduced significantly.

There is also a reasonable excuse defence, though HMRC applies it narrowly. Being unaware of the rules is unlikely to be accepted.

What Are the Downsides of VAT Registration?

Quarterly returns and software requirements

Every VAT-registered business must comply with Making Tax Digital (MTD), which means keeping digital records and using compatible software to submit returns.

Software typically costs between £10 and £40 per month. If your accountant handles the process, annual costs often fall between £200 and £600.

Impact on pricing

For businesses selling directly to consumers, VAT can affect competitiveness.

A competitor that is not VAT registered may be able to offer the same service for up to 20% less because end customers cannot reclaim VAT. This is often the biggest disadvantage for business-to-consumer businesses operating in price-sensitive markets.

Cash flow considerations

Under standard VAT accounting, you may owe VAT to HMRC before your customer has paid the invoice. That can create a cash flow gap, especially if clients pay late.

The Cash Accounting Scheme can help. Eligible businesses with taxable turnover below £1.35 million can account for VAT based on payments received rather than invoices issued.

More detailed bookkeeping

VAT registration brings additional bookkeeping responsibilities. Purchases and sales must be recorded correctly, and errors can lead to HMRC compliance checks that consume time and resources.

The Benefits of Voluntary VAT Registration

Reclaiming input VAT

Once registered, you can reclaim VAT paid on eligible business expenses, including equipment, materials, software, and professional services.

For businesses with significant VAT-bearing costs, this is often the strongest reason to register voluntarily. We can help you work out whether the input VAT recovery is likely to outweigh the extra admin, software costs, and pricing impact.

Pre-registration VAT claims

You may also be able to reclaim VAT on certain purchases made before registration.

Goods purchased up to four years before registration can qualify if they are still held by the business at the registration date. Services can usually be claimed for up to six months before registration.

For businesses that invested heavily before trading, this can provide a meaningful boost.

Improved credibility with larger clients

Many larger organisations prefer working with VAT-registered suppliers because the VAT charged can be reclaimed.

If you’re tendering for contracts with bigger businesses, VAT registration can sometimes strengthen your position.

The Flat Rate Scheme

Eligible businesses may be able to use the Flat Rate Scheme, which simplifies VAT accounting by applying a fixed percentage to gross turnover.

A marketing consultant using a 14.5% flat rate who invoices £10,000 plus £2,000 VAT receives £12,000 in total. They pay HMRC £1,740, which is 14.5% of £12,000, and retain the difference.

New registrants receive a 1% discount in their first year.

However, businesses classed as limited cost traders, typically those spending less than 2% of turnover on goods, are usually required to use the 16.5% rate, which removes most of the scheme’s advantage.

Is VAT Registration Worth It for a Small Business?

For many business-to-business companies, often yes.

If your customers are VAT registered themselves, they can reclaim the VAT you charge. Your competitiveness is largely unaffected, and you gain the benefit of reclaiming VAT on your own costs.

Things get more complicated when selling to consumers.

Customers cannot reclaim VAT, so adding 20% to your prices may reduce demand. Absorb the VAT instead, and your margin takes the hit.

That does not mean VAT registration is automatically bad for business-to-consumer companies. It just means the numbers need to be looked at properly. We can run the calculation against your actual customer mix, costs, margins, and growth plans.

Businesses with significant material, equipment, or operational costs tend to see the greatest benefit. Construction firms, manufacturers, and similar businesses frequently fall into this category.

A consultant working primarily from a laptop may reclaim very little VAT, making the compliance costs and extra administration harder to justify.

Example A: High input costs

A business generating £50,000 of income with £24,000 of VAT-bearing costs charges £10,000 in output VAT and reclaims £4,800 of input VAT.

After paying HMRC £5,200, and assuming customers are VAT-registered businesses that can recover the VAT charged, the business can be better off by around £4,500 after software and administration costs.

Example B: Low input costs

The same business with only £2,000 of VAT-bearing costs reclaims just £400.

Unless most customers are VAT-registered businesses, the benefit of registration is limited and the additional costs may outweigh any savings.

Approaching the threshold?

If you’re already on track to exceed £90,000, registering voluntarily a little earlier can reduce the risk of missing the mandatory deadline and facing penalties later.

It also gives you time to set up Making Tax Digital software, adjust pricing where needed, and understand how VAT will affect cash flow before HMRC deadlines start ticking. Less panic. Better numbers.

VAT registration can be completed through HMRC’s online registration service.

Not Sure Whether You Need to Register for VAT?

VAT registration rules are surprisingly easy to get wrong, and the cost of getting them wrong adds up quickly.

If you’re unsure whether you’ve crossed the threshold, expect to cross it soon, or want to understand whether voluntary registration makes sense for your business, get in touch.

At TurnerBerry, we will talk through your specific situation in plain English, explain the next steps, and help you deal with VAT before it becomes a problem.