Director's Loan Bed and Breakfasting: The 30-Day Rule Explained

The trick HMRC closed

The oldest move in the director's loan playbook: the s455 deadline is approaching, so you repay the loan just before it — often with borrowed money — then draw it straight back out a week later. The charge never crystallises, the loan effectively never left. HMRC calls it bed and breakfasting, and since 2013 two rules in the Corporation Tax Act 2010 (s464C) exist specifically to stop it.

Rule 1: the 30-day rule

Where repayments of £5,000 or more are made and, within 30 days, new loans or advances are drawn from the company, the repayment is matched against the new borrowing rather than the old loan. The old loan is treated as never repaid — so the s455 charge (35.75% for loans made on or after 6 April 2026, 33.75% for earlier loans) lands anyway.

The 30 days run in both directions around the repayment, and the matching is automatic. It does not matter that the repayment was genuine money.

Worked example. Meera owes her company £20,000 with a year end of 31 March. On 20 December she repays the full £20,000; on 5 January she draws £18,000 back out. Because £18,000 of the repayment is matched to the new drawing, only £2,000 counts as repaid. The company pays s455 on £18,000 — £6,435 at 35.75% — exactly what she was trying to avoid.

Rule 2: the £15,000 "intentions and arrangements" rule

Waiting 31 days doesn't save a larger loan. Where the balance is £15,000 or more and, at the time of repayment, there are arrangements or an intention to redraw, the matching applies regardless of the 30 days. Repay in December intending to redraw in March, and HMRC can still match the two.

Intent is a question of fact — a pattern of repay-and-redraw across year ends is usually all the evidence an inspector needs.

The escape route that is allowed

Both rules only catch repayments that recycle company money. A repayment that is itself taxed as income — a declared dividend credited against the loan account, or a bonus put through payroll — is not matched under s464C. That is why the standard year-end clean-up is a dividend or bonus set against the loan, not a cash round-trip: the tax on the dividend or salary is real, but it genuinely clears the balance.

What to do instead

• Clear the loan with a declared dividend or bonus credited to the loan account (taxed as income, so not caught).
• If repaying with cash, make sure it stays repaid — no redrawing within 30 days, and no arrangement to redraw at all for balances of £15,000+.
• If the charge is unavoidable, remember s455 is temporary: it comes back once the loan is genuinely repaid (how to reclaim it).

Run your own numbers — including what a partial repayment actually saves — in the free Director's Loan Tax Calculator.

This article is general guidance, not tax advice. The matching rules turn on facts and timing — take advice before relying on a repayment strategy.