The Director's Loan Account is a tally what the company owes the Director (for more information see our previous Q&A).

When a Director's Loan Account is overdrawn it means the Director has taken more money from the company than they are owed. In other words the Director now owes the company money.

There are two tax implications to an overdrawn Director's Loan Account.

S455 Tax

If the company is owed money by a Director at the end of its financial year the Director must either clear the money owed within 9 months of the year end or pay S455 tax.

S455 tax is calculated as 33.75% of the balance owed. If S455 tax is incurred it can be reclaimed at a later date if the Director repays the money owed to the company.

P11d

If the amount owed by the Director to the company is more than £10k at any point in a tax year, it is considered a benefit in kind from the company to the Director. In the P11d process this benefit is evaluated depending on the amount of money, the length of time of the loan and an interest rate HMRC provides. Both the company and the Director then pay tax and NI on the value of the benefit that is calculated.