If you’re running a limited company in 2026, you’ve probably noticed that the financial landscape is shifting faster than a London weather forecast. One of the most significant changes landing on directors' desks this year isn't just about the price of energy or office rent, it’s about the money you might be "borrowing" from your own business.
At Makes Sense Accountants, we’re seeing a lot of raised eyebrows lately when we talk about Director’s Loan Accounts (DLAs). For years, many business owners have used their DLA as a flexible way to manage cash flow. But as of the 2026 tax updates, the cost of that flexibility has taken a sharp hike. Specifically, the S455 tax rate has climbed from 33.75% to a stingier 35.75%.
It might not sound like a huge leap on paper, but in the world of corporation tax services, that 2% difference can lead to a very expensive headache if you aren't prepared.
What Exactly Is a Director’s Loan?
Before we dive into why it’s getting pricier, let’s do a quick refresher. A Director’s Loan is essentially any money you take out of your company that isn't a salary, a dividend, or a reimbursement for expenses. It also works the other way, if you put your own money into the business to keep things ticking over, that’s also recorded in your DLA.
In an ideal world, your DLA stays at zero or in credit (meaning the company owes you). However, many directors end up with an "overdrawn" DLA. This happens when you’ve taken out more than you’ve put in or declared as earnings.
Historically, this was a handy tool for short-term personal needs. Need a quick deposit for a car? Overdraw the DLA and pay it back within nine months of the year-end. No harm, no foul. But in 2026, HMRC is watching these accounts more closely than ever, and our limited company accounting services are focused on making sure you don't get caught out by the new rates.
The S455 Tax Hike: The 35.75% Reality
The big news for 2026 is the adjustment to the Section 455 (S455) tax. For those who aren't tax nerds, S455 is the tax a company must pay if a director owes the company money at the end of the accounting period and doesn't pay it back within nine months and one day.
For the last few years, this rate was tied to the dividend upper rate of 33.75%. However, to align with new fiscal policies, the government has bumped this up to 35.75%.
Think about that for a second. If you owe your company £50,000, your company now has to pay £17,875 in S455 tax to HMRC. While this tax is eventually refundable once the loan is repaid, it represents a massive "interest-free" loan from your business to the government. That’s cash that could have been used for stock, marketing, or hiring new staff.
Why the Increase Happened Now
Tax rates rarely go down, but why the jump in 2026? The Treasury is increasingly looking to discourage directors from using their companies as a personal "piggy bank" to avoid paying higher rates of personal income tax. By keeping the S455 rate high, and now even higher, they ensure that there is a significant financial deterrent to keeping loans outstanding.
This is where expert corporation tax services become vital. We help you navigate these shifts so you aren’t blindsided by a tax bill that’s thousands of pounds higher than you expected. You can check out more about how we handle these complexities on our accountancy and tax page.
The Double Whammy: Interest and Benefit in Kind
It’s not just the S455 tax you need to worry about. If your loan exceeds £10,000 at any point during the tax year, HMRC considers this a "Benefit in Kind" (BIK).
Unless you are paying the company interest at the official rate (which has also been creeping up), you personally will have to pay tax on the "benefit" of having an interest-free loan. Additionally, the company will have to pay Class 1A National Insurance on that value.
In 2026, with interest rates remaining volatile, the "official rate" set by HMRC is higher than it was in the early 2020s. Borrowing from your company is no longer the "cheap" option it once was.
The "Bed and Breakfasting" Trap
When people hear about the 35.75% S455 charge, their first thought is often: "I'll just pay the loan back the day before the nine-month deadline and take it out again the next day."
Nice try! HMRC caught onto that trick years ago. They call it "Bed and Breakfasting."
If you repay a loan of over £5,000 and then take out a new loan within 30 days, HMRC essentially ignores the repayment. They treat it as if the loan was never paid back, meaning that 35.75% tax charge is triggered anyway. There are even more complex rules for larger loans where there is an "intention" to redraw the money, even if it’s outside the 30-day window.
Managing these rules is a core part of our limited company accounting services. We ensure you stay on the right side of the law while keeping your business services running smoothly.
Strategies for 2026: What Should You Do?
So, if borrowing from the company is getting more expensive, what are your options?
- Declare Dividends Instead: If the company has sufficient retained profits, it’s often better to declare a dividend to clear the loan. Yes, you’ll pay personal tax on the dividend, but it clears the S455 liability and simplifies your LTD company accounting.
- Adjust Your Salary: In some cases, increasing your PAYE salary might be more tax-efficient, especially if it helps keep you within certain tax brackets while clearing your DLA balance.
- Strict Loan Management: Limit borrowing to under £10,000 to avoid the BIK headache, and ensure you have a clear plan to repay within the nine-month window.
- Regular Reviews: Don't wait until the end of the year. We recommend a quarterly review of your DLA to ensure things aren't spiralling out of control.
How Makes Sense Accountants Can Help
We know this sounds like a lot of "thou shalt nots." But at Makes Sense Accountants, our goal is to make your life easier, not harder. We’ve been helping business owners navigate the complexities of HMRC for over 15 years, and we pride ourselves on being a partner rather than just a service provider.
Our team takes a proactive approach. Instead of telling you about a massive tax bill in 2027, we’re talking to you now (in May 2026) about how to structure your withdrawals for the rest of the year. Whether it's through Making Tax Digital or bespoke tax planning, we ensure your company stays healthy and compliant.
Don’t Let S455 Catch You Off Guard
The jump to 35.75% is a clear signal that the rules around company money are tightening. If you have an overdrawn director's loan or you’re planning to borrow from your business this year, now is the time to sit down and crunch the numbers.
The "wait and see" approach could cost you thousands in temporary tax charges and permanent NI contributions. Let’s make sure your borrowing makes sense (pun absolutely intended!).
If you're worried about your current loan account or want to explore more tax-efficient ways to take money out of your business, we’re here to help. Our friendly team can walk you through the options and find a strategy that works for your specific situation.
Ready to get your accounts in order?
Contact Tim and the team today for a casual chat about how we can support your business with our limited company accounting services and expert corporation tax services.
Let’s keep your 2026 profitable, compliant, and stress-free!