Overdrawn Director's Loan Accounts for Dental Practice Owners: s455, BIK and the 9-Month Rule

Dental income does not arrive in neat monthly slices. NHS contract payments are reconciled against UDA targets at the year-end, private fee income swings with the diary, and lab and lab-heavy months distort cash. Yet most owners draw a steady amount every month to live on. When those drawings run ahead of the salary and dividends the company has actually declared, the difference does not vanish. It books to the director's loan account, and the account drifts overdrawn. At that point you are no longer just taking your own money. In the eyes of the tax system you have borrowed from your company, and a specific and expensive set of rules switches on.

This guide is the deep dive behind the director's-loan warning in our profit-extraction guide. It explains what an overdrawn director's loan account costs, the three traps that catch dentists, the dates that decide everything, and how to clear or avoid the problem cleanly. Throughout, every rate carries its date, because two of the key figures change from 6 April 2026.

What the director's loan account is, and why dentists drift into one

The director's loan account, or DLA, is simply the running tally of money owed between you and your company outside the formal channels of salary and dividend. It can sit either way.

• In credit, the company owes you. This happens when you have lent the company money, or paid practice costs personally, or are owed expenses. There is nothing to worry about here, and you can draw the credit balance back tax-free.
• Overdrawn, you owe the company. This is the problem case. It means you have taken out more than the company has declared as your salary or dividends, so the excess is, in substance, a loan from the company to you.

Dentists drift overdrawn for an entirely innocent reason: the timing mismatch between steady drawings and uneven profit. You take, say, £8,000 a month to live on. Profit lands unevenly, dividends are only declared periodically, and for several months the cumulative drawings exceed the cumulative declared income. The account is overdrawn, often without anyone watching the balance until the accountant prepares the year-end figures. By then the position is baked in, and the rules below apply to the closing balance.

The close-company point

A typical owner-managed dental company, controlled by one principal or a small handful, is a close company for tax purposes. That label matters because section 455 of the Corporation Tax Act 2010 exists specifically to stop the owners of close companies extracting profit as an untaxed loan instead of as taxed salary or dividend. Without it, an owner could simply "borrow" the profits indefinitely, pay no income tax on a dividend and no NIC on salary, and leave the money sitting as a loan forever. Section 455 closes that door by charging the company when the loan is left outstanding.

So the rule is not aimed at dentists who occasionally drift overdrawn through timing. It is aimed at the use of a loan as a substitute for proper extraction. But it applies mechanically to any overdrawn participator loan left outstanding past the deadline, innocent timing included, which is why it catches people who never intended to avoid anything.

The s455 charge: rate and mechanism

When a close company has an overdrawn participator loan outstanding at the relevant date, it pays a section 455 charge on that balance. The rate is not a separate number to memorise. It is defined as the dividend upper rate, so it moves whenever that rate moves:

• 33.75% for loans made in 2025/26.
• 35.75% for loans made on or after 6 April 2026, in step with the Finance Act 2026 increase to the dividend upper rate.

The charge is collected as if it were corporation tax for the accounting period in which the loan was made, and it is paid on the same date as the company's ordinary corporation tax. Critically, it is calculated on the balance still outstanding at that date, not the highest balance reached during the year. If you clear the loan in time, there is nothing to charge.

The 9-month-and-1-day repayment rule

The deadline is the heart of the s455 rules. Corporation tax for an accounting period is due 9 months and 1 day after the period ends. The same date governs s455: the charge applies only to the overdrawn balance still outstanding at that 9-month-and-1-day point.

Worked through: a company with a 31 March 2026 year-end has its corporation-tax payment date on 1 January 2027. If the director's loan is cleared by 1 January 2027, no s455 arises on it, even if it sat overdrawn for most of the year. If it is still outstanding on 1 January 2027, s455 is due on the balance then. This is why a planned repayment or a properly declared dividend before the deadline can remove the charge entirely. The window between year-end and the deadline is the opportunity, provided the repayment is genuine and not bed-and-breakfasted (see below).

s458 relief: getting the s455 back

Section 455 is a temporary charge, not a permanent tax, and that distinction is one dentists frequently miss. When the loan is repaid, released or written off, the s455 paid on it becomes reclaimable under section 458. The reclaim is made on the L2P claim form.

The sting is in the timing. Relief is not given when you repay. It is deferred to 9 months and 1 day after the end of the accounting period in which the repayment falls, and the claim must be made within 4 years of the end of that period. So even though the money comes back, HMRC holds it for a considerable time, and the s455 functions as an interest-free loan from the company to HMRC in the meantime. Treat the s455 as cash you will not see again for up to a couple of years, not as a charge that reverses the moment you clear the balance.

Bed-and-breakfasting: the anti-avoidance that stops you "repaying" round year-end

The obvious wheeze is to repay the loan just before the period-end, dodge s455, then redraw the money soon after. HMRC anticipated it. Two anti-avoidance rules block the manoeuvre:

• The 30-day rule (section 464ZA). Where £5,000 or more is repaid and £5,000 or more is redrawn within 30 days, the repayment is matched against the new advance and ignored for s455. The balance is treated as never having been repaid.
• The arrangements rule (sections 464C and 464D). Where the balance is £15,000 or more and, at the time of repayment, there is an intention to redraw, the repayment is ignored regardless of the 30-day window. This catches the slower, more deliberate version of the same plan.

The practical effect is that a repayment has to be real. Clearing the DLA with cash you genuinely no longer have access to is fine. Declaring a dividend to wipe the account on paper and then drawing the same cash straight back out is not, because the rules treat it as if the repayment never happened. If you want to clear an overdrawn DLA with a dividend, declare a dividend you can lawfully pay and leave the position cleared.

Benefit-in-kind on a loan over £10,000

Section 455 is not the only charge. There is a second, entirely separate one: the beneficial-loan benefit-in-kind. If your total director's loans exceed £10,000 at any point in the tax year and you pay the company no interest, or interest below HMRC's official rate, the cheap loan is a taxable benefit.

Two figures matter. The £10,000 small-loan exemption: stay below £10,000 throughout the whole tax year and there is no benefit to report; go over at any point and the exemption is lost for the year. And the official rate of interest, which is 3.75% from 6 April 2025 (up from 2.25% in 2024/25, and reviewed periodically thereafter). The benefit is broadly the official-rate interest on the loan, less any interest you actually paid. It is reported on a P11D, taxed on you as employment income, and the company pays Class 1A NIC at 15% (2025/26) on the benefit.

The clean way to remove this charge is to have the company charge you interest at the official rate. Pay the official rate and there is no beneficial-loan benefit to tax, although the company then has interest income to account for.

The two charges can stack

This is the point dentists most often miss, so it is worth stating plainly: s455 and the benefit-in-kind can both bite on the same overdrawn balance, and they are different charges with different owners and different fates.

• s455 is a company-level charge on the loan balance. It is reclaimable under s458 once you repay.
• The benefit-in-kind is a personal-level charge: income tax on you, plus Class 1A NIC on the company. It is not reclaimable. It is the price of having had a cheap loan, and repaying the loan does not give it back.

So a large, long-standing overdrawn balance can cost you the s455 cash-flow hit (eventually recoverable) and the benefit-in-kind income tax and NIC (gone for good), at the same time, on the same money. The worked examples below put numbers on both.

Worked example A: s455 on an overdrawn balance

A dental company owner's drawings run £40,000 ahead of declared salary and dividends. The DLA is overdrawn by £40,000 at the 31 March 2026 year-end and is not cleared by the deadline. The s455 charge is 33.75% of £40,000 = £13,500 (2025/26 loan rate), payable as if it were corporation tax on 1 January 2027, which is 9 months and 1 day after 31 March 2026. For comparison, a loan made in an accounting period beginning on or after 6 April 2026 would carry s455 at 35.75%, which on the same £40,000 would be £14,300. The date the loan is made decides the rate.

Worked example B: s458 reclaim timing and cash-flow drag

Continuing example A, suppose the owner repays the £40,000 in August 2027. The £13,500 of s455 is reclaimable under s458, but relief is given only 9 months and 1 day after the end of the accounting period in which the repayment falls. The repayment falls in the year to 31 March 2028, so relief lands on roughly 1 January 2029, and the claim must be made within 4 years of that period-end. So although the s455 is "temporary", HMRC has effectively held £13,500 of the company's cash for around two years between paying the charge in January 2027 and recovering it in January 2029. For a practice managing equipment finance or a refurbishment, that is real working capital tied up for the sake of a balance that should never have drifted that far.

Worked example C: the £10,000 benefit-in-kind

Take the same £40,000 overdrawn balance held across the 2025/26 tax year, with no interest charged to the director. Because the balance exceeds £10,000, the small-loan exemption is lost and the benefit is measured on the whole loan. At the official rate of 3.75% (from 6 April 2025), the benefit is roughly 3.75% of £40,000 = £1,500. A 40% taxpayer pays £600 of income tax on that benefit, and the company pays Class 1A NIC at 15% on the £1,500, which is £225. This £825 of total cost sits on top of the £13,500 s455 in example A, and unlike the s455 it is not reclaimable. Charging the company interest at the official rate would remove the benefit-in-kind entirely.

Worked example D: bed-and-breakfasting fails

Suppose the owner tries to dodge the s455 in example A. They "repay" the £40,000 two weeks before the 31 March year-end and then redraw £38,000 three weeks later. Because a repayment of £5,000 or more is matched by a redraw of £5,000 or more within 30 days, and there is a clear intention to redraw with a balance well over £15,000, both anti-avoidance limbs apply. The repayment is matched to the new advance and ignored. For s455 purposes the loan is treated as never repaid, and the £13,500 charge stands. The lesson is that only a genuine, permanent reduction counts.

Writing off the loan instead of repaying it

Sometimes owners ask whether the company can simply write off the loan. It can, but it is rarely the efficient answer. A written-off director's loan is treated as a deemed dividend in the director's hands and taxed as such, and there can be National Insurance consequences as well. The write-off does trigger the s458 reclaim of the s455 already paid, but because the write-off is itself a taxable event for the director, you have generally converted a recoverable company charge into a personal income-tax charge. In most cases a proper repayment, or clearing the balance with a lawfully declared dividend, leaves you better off than a write-off.

How a dentist clears or avoids an overdrawn DLA properly

There are several legitimate ways to deal with an overdrawn account, and the right one depends on the company's profits and the calendar:

• Declare a dividend out of distributable profits to clear the balance before the 9-month-and-1-day deadline. Mind the 2026/27 dividend rate rise (upper rate to 35.75% from 6 April 2026), which makes the timing of the declaration matter, and make sure the company actually has the distributable reserves to pay it lawfully.
• Vote a bonus, accepting the PAYE and NIC cost, where a dividend is not available (for example, insufficient distributable profit).
• Charge official-rate interest on the loan to remove the benefit-in-kind, where the balance will persist.
• Fund repayment personally before the deadline, from other resources, so the balance is genuinely cleared.

Each route has a different cost, and they are not mutually exclusive. The common feature of the good options is that they deal with the position properly rather than papering over it round the year-end.

Why drawings discipline beats the cleanup

The cheapest way to handle an overdrawn DLA is never to have one. That is a function of drawings discipline, not accounting cleverness. Monthly management accounts that show declared income against cumulative drawings make the balance visible in real time, so you can declare an interim dividend or adjust drawings before the account drifts. A simple drawings policy, set against a realistic view of sustainable profit, keeps the timing mismatch from becoming a tax problem. This matters more in dentistry than in many businesses precisely because the income is so uneven: variable NHS reconciliation and lumpy private fees make steady drawings deceptively easy to overdo.

We have seen the cleanup version too. An owner whose drawings had run roughly £40,000 ahead of profit was facing a stacked s455-and-benefit-in-kind bill, and cleared it before the 9-month deadline with a properly minuted dividend out of genuine distributable reserves, sidestepping the s455 entirely. It worked because the dividend was real and lawful, and because there was profit to support it. The far easier path would have been to never let the gap open in the first place.

How the DLA connects to the rest of your tax

The director's loan account does not sit in isolation. The s455 charge is collected through, and shares deadlines with, the company's corporation tax, and the 9-month-and-1-day date is the same date that governs your corporation-tax payment. The cleaner alternative to drifting overdrawn is simply to extract profit properly in the first place, which is the subject of our guide to how to pay yourself as a practice owner. And if your structure involves more than one company, the related loan and dividend mechanics in dental group structures raise their own version of these issues.

Common mistakes

• Treating the DLA as free money. It is a loan, and an outstanding one is taxed.
• Clearing it with a dividend the company cannot legally pay. A dividend without distributable profits is unlawful and does not solve the problem.
• Ignoring the £10,000 benefit-in-kind trip-wire. The personal income tax and Class 1A NIC are separate from s455 and not reclaimable.
• Assuming the s455 is lost forever. It is reclaimable under s458, just slowly.
• Redrawing within 30 days. Bed-and-breakfasting fails, and the charge stands.
• Watching only the bank balance. The DLA, not the bank, is what drives the charges.

The bottom line

An overdrawn director's loan account is one of the most common, and most avoidable, tax problems for incorporated dental practices. The s455 charge of 33.75% (35.75% on loans made from 6 April 2026) bites on the balance outstanding 9 months and 1 day after the year-end, and although it is reclaimable under s458, the relief is deferred for up to a couple of years. On top of it, a balance over £10,000 with no interest is a benefit-in-kind that is never recoverable. Bed-and-breakfasting will not save you. What saves you is monthly visibility of the account, a sensible drawings policy, and clearing any overdrawn balance properly and in time, with a lawfully declared dividend or genuine repayment, before the deadline.