How Company Loans, Drawings and Dividends are Changing

HMRC’s Changing Approach to Director’s Loans and Company Reporting

HMRC is consulting on changes to the way transactions between close companies and their participators are reported. For owner-managed businesses, that means a much closer focus on director’s loan accounts, dividends, drawings and other transfers of value. Some reporting changes are already appearing in Self Assessment, and HMRC’s wider proposals point towards more detailed disclosure in future.

Director’s loans

Under the current rules, a loan to a shareholder-director can create a benefit in kind where the outstanding balance exceeds £10,000 at any time in the tax year. In that case, the company must report the benefit and Class 1A National Insurance may be due. If the loan is not repaid within 9 months of the end of the company’s accounting period, the company may also have to pay the section 455 tax charge.

The section 455 charge is currently aligned to the dividend upper rate, which is 33.75% for loans within the existing regime. Dividend tax rates for individuals have separately increased from 6 April 2026, with the higher dividend rate now 35.75%.

Proposed reporting changes

HMRC has launched a consultation on reporting company payments to directors and shareholders, which could lead to a new mandatory reporting regime for close companies (companies with one to five shareholders). The proposals cover a broad range of transactions, including loans, dividends, drawings, asset sales and purchases, and other transfers of value. The direction of travel is towards annual or otherwise regular reporting with more transaction-level detail than exists today.

The consultation also indicates that amounts already reported through RTI and payroll (salaries and employee type benefits) would not need to be duplicated. That suggests HMRC is trying to build a reporting system that can match company payments with personal tax records more effectively.

What this means for directors

For directors of close companies, the practical message is that withdrawals from the company need to be documented and monitored carefully.

An overdrawn director’s loan account can trigger a benefit-in-kind charge, section 455 corporation tax for the company, and in some cases an income tax charge if the loan is written off or released.

Directors should also be aware that HMRC is moving toward more detailed reporting, which means informal drawings, loans and dividend-like payments are more likely to be visible to HMRC than before. Regular withdrawals may eventually be seen as earnings rather than dividends, especially if not supported by appropriate paperwork.

That makes it more important to keep bookkeeping up to date, minute decisions properly, and make sure there are sufficient distributable reserves before dividends are voted.



In practice, directors should review their loan accounts regularly, clear overdrawn balances before the nine-month deadline where possible, and take advice before using loans as a short-term funding method. If a loan cannot be repaid, it is usually better to deal with it early than to let the tax position become more expensive and more complicated.

Self Assessment reporting

HMRC has also introduced new Self Assessment reporting for company directors, including details about whether the company is a close company, the company name and the director’s shareholding. The purpose is to improve HMRC’s ability to match director disclosures with company records and identify loans or dividends that may have tax consequences.

Final thoughts

The key message for directors is simple: keep loan accounts, dividends and drawings under review, and do not assume that informal withdrawals are tax-free or invisible to HMRC. Current rules on director’s loans still apply, including the £10,000 benefit-in-kind threshold and the section 455 charge where loans remain outstanding after 9 months. With HMRC also moving towards more detailed reporting, good record-keeping and timely tax advice are more important than ever.