Yes, you can borrow money from your own limited company in the United Kingdom. It’s also known as a director’s loan. But taking a loan has its own disadvantages and financial risk for both the company and the individual. Every other blog you went through will mention the steps you can take to get the loan. But our Shreem Team has worked on this blog to give you the reality of what it actually costs to get the loan.
Impact of borrowing money from a limited company on an individual & company
Benefit in Kind (BiK) Income Tax
If you borrow over £10,000 without paying any interest, it is treated as Benefit in Kind, and HMRC is alerted to this. You need to pay personal tax, and your company has to pay extra Class 1A National Insurance on the loan amount. The personal tax needs to be paid via Self Assessment at an interest rate of 3.75%.
Class 1A National Insurance Contributions (NICs)
Along with benefit-in-kind income tax by individual, the company has to pay 15% of the cash equivalent of the benefit.
Section 455 Tax Trap
If the loan you borrowed is not paid within nine months and one day, your company must pay a Section 455 corporation Tax charge. As of now, after 6 April 2026, the current rate is 35.75% on the amount borrowed. S455 isn’t a permanent cost. Once the director’s loan is cleared and whether it’s repaid, released, or written off the company gets the tax back.
The catch is timing. HMRC doesn’t hand it back straight away. The reclaim only kicks in nine months and one day after the end of the accounting period in which the loan was repaid, not the period the charge was originally raised in. So if a director takes years to settle up, the company could be sitting on that tax bill for a long stretch, even after the loan itself is squared away.
Bed and Breakfasting
To avoid paying Section 455 tax, a director might repay the loan before nine months and re-borrow the money. This is why, in 2013, HMRC introduced Anti-avoidance measures also known as the “Bed and Breakfasting” rule.
£5,000 Rule (30-day rule)
If you repay more than £5,000 of a loan and within 30 days you borrow another amount from the company. HMRC ignores this repayment and the original loan is treated as still outstanding.
£15,000 Rule (intention-based rule)
If your outstanding loan is £15,000 or more, you repay the loan and intend to borrow again. Unlike 30 days rule, HMRC will examine the facts and circumstances.
What is the Taxation on Written-Off Loans
If you take the money from your limited company and the company decides that you don’t need to repay it, this is called writing off the loan. However, HMRC doesn’t treat this as a cancellation. A written-off director’s loan is treated as if the company has given the shareholders a distribution (Dividend) under the Corporation Tax Act 2010, Section 415. But you may have to pay personal dividend tax on the written-off amount.
Writing off the loan can create additional issues if the company cannot recover the loan taken by the director or shareholder. Hence, a company cannot simply write off any director loan.
Our Take on Borrowing Money from a Limited Company in the UK
Yes, borrowing money from your limited company is possible, but as mentioned above, it’s not simple. You have to be careful so that you don’t face unexpected tax bills or worse, extra HMRC enquiries. If you are still unsure, contact our Shreem Team via phone or book a meeting with one of our accounting experts.
