Understanding the 30-Day Rule on Directors’ Loan Accounts

Changing Interest Rates and Opportunities

While general interest rates are falling, HMRC’s official rate of interest (ORI) on employee loans has actually risen to 3.75% per annum (from 6 April 2025). For comparison, as of 29 August 2025, the average 30-year fixed mortgage rate stands at 4.74%. Since ORI is reviewed quarterly, the next adjustments may come into effect on 6 October 2025 or 6 January 2026.

This gap between ORI and market rates may create short-term planning opportunities for company directors (or “participators” and their associates). For example, directors could use company funds to refinance a mortgage or clear high-interest credit card balances—potentially saving money on interest charges.

The key benefits? These loans are interest-free, require no application forms, and there’s no risk of rejection from banks. However, directors must tread carefully to stay compliant with tax rules.

Repayment Deadlines: The 9-Month Rule

The most important rule is timing:

• Any loan or advance must be repaid within nine months and one day after the company’s accounting period ends.

• If not repaid on time, the company faces a tax charge of 33.75% on the outstanding balance.

A refund can be claimed once repayment is made—but not until nine months and one day after the accounting period in which the debt was cleared. HMRC refunds are often slow, and claims must be made within four years, otherwise the relief is lost.

The “Bed and Breakfasting” Trap

HMRC has anti-avoidance rules to stop directors from using creative repayment strategies. One of the key ones is the 30-day rule:

• If a repayment of £5,000 or more is made and, within 30 days, a new withdrawal of £5,000 or more occurs, the repayment is not matched to the original loan.

• Instead, it is set against the new borrowing, meaning only the net reduction counts as repayment.

This prevents directors from “recycling” loans to reset the repayment clock.

The 2024 Autumn Statement introduced even tighter measures, stopping companies from passing loans around related businesses to dodge the nine-month deadline.

Exemptions for Smaller Loans

Not all loans trigger these charges. There is a conditional exemption if:

• The loan is £15,000 or less,

• It is made to a full-time employee, and

• That employee does not have a material interest in the company.

However, the “intention and arrangements” rule applies. If the loan outstanding before repayment is £15,000 or more and there are plans to borrow at least £5,000 again, the exemption is lost—even if the new borrowing happens outside the 30-day window.

Practical Considerations

• Repayments made through taxable salary, bonuses, or dividends generally fall outside the anti-avoidance rules.

• If the loan is over £10,000, it may be wise to charge interest to avoid benefit-in-kind issues.

Key takeaway: Directors’ loan accounts can be useful for short-term funding, but the rules are strict. Timing, repayment methods, and awareness of the anti-avoidance rules are crucial to avoid unexpected tax charges.

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