Overdrawn Directors Loan Account : S. 455 charge and S.458 relief

For most of my career I have worked for charities and therefore have no practical experience of taxation of overdrawn Directors Loan Accounts for a Close Company but am attempting to sort out my son’s tax affairs.  I appreciate that there is a charge to tax under S.455 and relief under S.458 when the loan is repaid.  However what isn’t clear to be despite reading the HMRC Manual and their Toolkit is the application of these sections over a number of financial years.


For example, in in 2011/12 he is overdrawn by £10,000 at the year end and a charge of £2,500 applies. There were no repayments within 9 months.  At the end of 2012/13 the loan has risen to £15,000 and no repayment has been made.    Based on the notes on the Tax Return he calculated the S.455 charge as 25% of £15,000 i.e. £3,750   giving a total charge to date of £6,250 to date.  The company effectively stopped trading at this point. A further S.455 charge appears due for 2013/2014 giving a total to date of £10,000 (none of which has actually been paid to HMRC).  In 2014/2015 he will repay £5,000 of the loan and appears to be entitled to S.458 relief of £1250 but the S.455 charge to date will have increased to £11,250  In 2015/2016 he will repay the balance of the loan of £10,000 getting S.458 relief of £2500.  Therefore having ‘paid’ S.455 of £12,500 he will have ‘received’ S.458 relief of £3,750. 

 Therefore should the S.455 charge have only been calculated on  each year’s new loan or when he repays a portion of the loan does he recover the total charge paid on that tranche of the loan over the period the loan is outstanding?

I'd appreciate any insight from a member dealing with these issues .  Thank you for your help.
  • The s455 charge is only on the increase in the loan in later years i.e at year 2, the s455 charge would only be on the £5,000 extra loan and if the loan did not increase further, there is no further s455 charge in year 3.    s455 is a one off charge when a loan is first made, not an annual charge.

    So once all the loan has been repaid, all the s455 tax will be recoverable.

    Hope that helps.
  • Thank you for taking the time to post the information.  Once again it appears that the guidance notes provided by HMRC are not complete.