Higher tax charges on director loans from April 2026

In simple terms, the rules apply where a director is a participator, meaning a shareholder, and the company is classed as a close company, typically one controlled by five or fewer shareholders.

Director loan accounts commonly become overdrawn for practical reasons, such as short-term personal funding needs. These balances are often cleared by declaring a dividend or bonus. However, this is not always possible, particularly where profits are insufficient or where the personal tax cost of extracting funds is too high in a given year.

The additional tax charge arises where a loan remains outstanding nine months and one day after the end of the company’s accounting period. Timing can therefore be critical.

By way of example, if a director withdraws £150,000 from their personal company on 15 April 2026 and the company’s year end is 31 March, the loan falls into the year ending 31 March 2027. If it is repaid by 1 January 2028, no tax charge arises. In effect, the director could have use of the funds for more than 20 months, with the only personal tax cost being the benefit in kind on a beneficial loan.

If the loan is not repaid by that date, the company will face a tax charge of £53,625, calculated at 35.75 percent, payable alongside its corporation tax.

Rachel Hay, Partner, comments, “Director loan accounts are often treated as informal arrangements, but the tax consequences can be significant. With the rate increasing from April 2026, it is more important than ever that balances are monitored and repayment plans are clear.”

Where a loan is later repaid or formally written off, HMRC will refund the tax charge, although this can take time and affect cash flow in the interim.

HMRC guidance on loans to directors is available here, but professional advice is recommended where loan balances are material or ongoing.