Section 455 is a tax charge that applies when a close company (typically a small owner-managed agency) makes a loan to a director or shareholder that is not repaid within nine months of the end of the accounting period.

For agency founders, this charge acts as a deterrent against extracting money from your agency as a director's loan rather than through salary or dividends. If you borrow money from your agency and do not repay it within the nine-month window, your agency must pay a tax charge equal to 33.75% of the loan amount (the rate for 2025/26). This charge is not a penalty but a deposit: it is refunded to the agency once the loan is repaid, provided the repayment happens after the nine-month deadline.

Here is how it works in practice for UK agency founders:

  • Loan creation: If your agency lends you £20,000 on 1 January 2025, and you have not repaid it by 30 September 2025 (nine months after the end of the accounting period if your year-end is 31 December), the agency must pay £6,750 in Section 455 tax (33.75% of £20,000) by the corporation tax filing deadline.
  • Repayment and refund: If you repay the loan on 1 March 2026, the agency can reclaim the £6,750 from HMRC. The refund is processed as a reduction in the agency's corporation tax liability for the period in which the repayment occurs.
  • Interest implications: If the loan is not repaid within the nine-month window, HMRC also charges interest on the unpaid Section 455 tax from the original due date until the date of repayment.
  • Exceptions: Loans of £15,000 or less to a director who works full-time for the agency (and does not own more than 5% of the shares) are exempt from Section 455. Similarly, loans made in the ordinary course of business (e.g., a credit account for expenses) are not caught.

Section 455 applies regardless of whether the loan is formally documented or simply an overdrawn director's loan account. HMRC treats any amount owed by a director to the agency as a loan, including unpaid dividends or salary that have been credited to the director's account but not withdrawn.

When this matters for agency founders

This matters for agency founders because taking a director's loan without planning the repayment timeline can trigger an unexpected 33.75% tax charge on your agency's cash flow, plus interest. Always structure withdrawals as salary or dividends where possible, or ensure any loan is repaid within nine months of your year-end to avoid the charge entirely.