Director loan repayments and the 30 day rule

Q: What mistakes should directors and advisers avoid?

Relying on a gap of 31 days. It defeats the 30 day rule but not the arrangements rule for balances of £15,000 or more. Getting the mechanics wrong. HMRC checks that funds actually cleared into the company's bank account before the relevant date and that book entries reflect real transactions (CTM61615). Leaving the loan off the return. HMRC says a loan made and repaid in the same period normally need not be reported, but that does not apply where the repayment was temporary and the loan is treated as outstanding under section 464ZA (CTM61600). Paying a dividend in cash and paying it straight back. The income tax exclusion does not apply to money that has left the company. Moving the debt to a sister company. HMRC does not treat that as a repayment at all (CTM61602). Overdrawn loan accounts are a regular feature of HMRC checks on owner managed companies. Our guides to director's loan accounts and close company rules cover the wider position. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

A director cannot clear a section 455 charge by repaying an overdrawn loan account around the year end and then borrowing the money back. Section 464ZA of the Corporation Tax Act 2010 treats the repayment as repaying the new loan instead of the old one where £5,000 or more is repaid and £5,000 or more is borrowed again within 30 days, or where at least £15,000 was owed and arrangements for fresh borrowing were already in place. The original loan stays outstanding and the tax stays payable.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

What is bed and breakfasting a director’s loan?

HMRC uses the phrase for a pattern it describes at CTM61615. A participator’s debt to a close company is reduced or cleared just before the accounting date, or just before the section 455 tax falls due nine months later, and a fresh loan of the same or a similar amount follows soon afterwards. The temporary repayment is often funded by short term borrowing from a bank, by transferring an asset to the company or by moving money from another account with the company. The aim is to avoid the section 455 charge even though the director has, in substance, had the same loan for years.

Without special rules, a genuine repayment within nine months of the year end would give relief under section 458 and stop any tax being due, as explained in our guide to reclaiming section 455 tax. The matching rules stop that relief when the repayment does not last. They apply to repayments made on or after 20 March 2013 and now sit in section 464ZA, inserted with effect from 30 October 2024 by the Finance Act 2025.

How does the 30 day rule work?

Section 464ZA(1) is mechanical. It applies where, within any period of 30 days:

repayments totalling £5,000 or more are made in respect of earlier loans to a person, and
new loans totalling £5,000 or more are made to that person or an associate, and
the new loans are made in a later accounting period than the loans being repaid.

Where those conditions are met, the repayments are treated as repaying the new loans, up to the amount of the new loans. Only any surplus repayment counts against the original balance. A new loan is caught only to the extent it is not itself repaid within the same 30 days. The repayment can be made before or after the year end; HMRC’s guidance at CTM61630 says it looks at every 30 day period from 30 days before the end of the accounting period to nine months and 30 days after it.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

How does the arrangements rule work?

Section 464ZA(3) catches cases where the gap between repayment and fresh borrowing is longer than 30 days. It applies if:

immediately before the repayment, the person owes the company £15,000 or more in respect of loans within section 455,
at the time of the repayment, arrangements had been made for one or more new loans to replace some or all of the amount repaid, and
the new loans made under those arrangements total £5,000 or more.

The repayment is then matched with the replacement loans in the same way. There is no time limit, so waiting 31 days or several months does not help if the plan to borrow again existed when the money went in. HMRC says at CTM61635 that arrangements has a wide meaning and can be one sided. Its example is a director who arranges with his own bank to move money temporarily from a personal savings account to the company and back again within about ten days, with no involvement from the company. Officers are told to ask for board minutes, bank correspondence and bank statements for both company and participator. The 30 day rule takes priority, so the arrangements rule only applies to amounts not already matched.

Which repayments are outside the rules?

Section 464ZA(6) switches the matching off for a repayment that itself gives rise to an income tax charge on the participator. HMRC’s guidance at CTM61642 gives two examples: a dividend credited to the loan account and taxed on the director’s return, and a bonus put through PAYE and National Insurance and then credited to the account. Clearing a loan this way is permanent, because the director has paid income tax to do it.

The exclusion is narrower than many people assume. HMRC says it does not cover:

a dividend or bonus paid out in cash and then paid back into the company, because once the money leaves the company it loses its identity as a repayment,
a dividend from a different company paid into the lending company, because the repayment must come from the same company source,
rent paid by the company to the participator credited against the loan, because rent is part of a property business calculation rather than income that is itself taxed.

For the choice between dividends and salary as a way of clearing a balance, see our guide to salary versus dividends and how to pay dividends legally.

What do HMRC’s own examples show?

CTM61630 works through three cases under the 30 day rule.

Facts	Result
£6,000 outstanding; £6,000 repaid two days before the year end; new loan of £6,000 on the third day of the next period	Repayment matched with the new loan. £6,000 remains chargeable for the first period
Same, but £10,000 repaid	£6,000 matched with the new loan; £4,000 relieves the old loan, leaving £2,000 chargeable
£2.5m outstanding at the year end and repaid within nine months; new loans of £300,000 made within 30 days either side of the repayment	£300,000 of the repayment matched with the new loans; relief only on £2.2m, so £300,000 stays chargeable

CTM61640 adds a longer example with several loans and repayments over two years. Applying both rules in order leaves section 455 charges totalling £75,000 across the two periods, which equals the loan account balance at the end of the second year. That is the point of the legislation: tax follows the money the director actually keeps.

How might the arrangements rule apply to a typical director?

Illustration only. A company’s year ends on 31 December 2025, and its sole director owes £30,000 borrowed in June 2025. In September 2026 the director takes a personal overdraft and repays the £30,000 so that no section 455 tax is due on 1 October 2026. The plan, recorded in an email to the accountant, is for the company to lend the money back after that date. On 5 November 2026 the company lends the director £30,000.

The new loan is more than 30 days after the repayment, so the 30 day rule does not apply.
The director owed at least £15,000 before repaying, arrangements for a replacement loan existed when the repayment was made, and the new loan is £5,000 or more, so the arrangements rule applies.
The £30,000 repayment is matched with the November loan. The June 2025 loan is treated as still outstanding, so section 455 tax of 33.75%, £10,125, was due for the 2025 accounting period.

Had the director cleared the balance with a properly declared and paid dividend credited to the loan account and taxed on the director’s return, the exclusion in section 464ZA(6) would apply.

What mistakes should directors and advisers avoid?

Relying on a gap of 31 days. It defeats the 30 day rule but not the arrangements rule for balances of £15,000 or more.
Getting the mechanics wrong. HMRC checks that funds actually cleared into the company’s bank account before the relevant date and that book entries reflect real transactions (CTM61615).
Leaving the loan off the return. HMRC says a loan made and repaid in the same period normally need not be reported, but that does not apply where the repayment was temporary and the loan is treated as outstanding under section 464ZA (CTM61600).
Paying a dividend in cash and paying it straight back. The income tax exclusion does not apply to money that has left the company.
Moving the debt to a sister company. HMRC does not treat that as a repayment at all (CTM61602).

Overdrawn loan accounts are a regular feature of HMRC checks on owner managed companies. Our guides to director’s loan accounts and close company rules cover the wider position.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.