The Forgotten Loan

I was speaking to an accountant last week. He’d been kind enough to recommend one of his clients to me for some finance, and while we were chatting, he brought up the Section 455 charge. Most directors know that an overdrawn loan account can land them with a personal tax bill. Fewer know about Section 455, and even I hadn’t noticed how sharply it’s just gone up.

If a director’s loan account is sitting overdrawn on the books, and it isn’t cleared in time, HMRC doesn’t note it down and move on. They tax it. Not you personally. The company. Real cash, out of the bank, whether you’ve noticed it building up or not.

It’s sitting at thirty five point seven five percent right now. Take twenty thousand pounds out of your company and lose track of it, and you’re looking at a bill of over seven thousand pounds. For money that might have already been spent months ago.

Nine months and one day after your year end. That’s the deadline. Miss it, and the charge lands, automatically. No warning letter, no phone call.

And you don’t get it back quickly either. Even once the loan’s repaid, the company can be waiting the best part of two years to see that money again.

Here’s where it gets dangerous. If that bill catches you off guard, and you go looking for something quick to cover the gap, be careful. Short-term business loans come in so many shapes, and the online adverts are built to catch company directors applying direct, on their own, under pressure. It’s a costly mistake. I quite often halve the rate a client’s been quoted, simply by knowing where a case like theirs actually belongs.

Two calls could save you a fortune here. One to your accountant this week, to see exactly where your loan account stands. And one to me, before you sign anything, if you ever need to cover a gap like this.

If you need someone on your side? I’m Mark Smillie.