How do I calculate a Section 455 tax charge?

A Section 455 tax charge (S455) is a refundable charge to corporation tax that must be paid by close companies under the loans to participators rules.  

Close companies are companies under the control of five or fewer participators, or under the control of their directors.  

If a participator owes money to the company, in certain circumstances the company must pay a refundable S455 tax charge until the loan is repaid. At this point, the S455 tax is refunded to the company. 

Let’s look at a worked example below: 

Melanie is the sole director and shareholder of Lighting Limited. As the company is controlled by its only director, Lighting Limited is a close company.  

Lighting Limited grants a loan of £20,000 to Melanie in March 2023, which is recorded in the director’s loan account on the company’s balance sheet. The company’s year-end is 31st December 2023 and the company’s corporation tax accounting period aligns with the financial year. By 1st October 2024, Melanie has not repaid the loan, so the director’s loan account remains overdrawn. 

As this is more than nine months after the accounting period end for corporation tax purposes, a Section 455 tax charge is payable at 33.75% of the loan amount.  

33.75% x £20,000 = £6,750 

Lighting Limited declares a dividend of £25,000 in February 2025. Melanie uses £20,000 of it to clear her director’s loan account. Lighting Limited can now reclaim the £6,750 corporation tax. 

First published 30 Jul 2025

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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