Interest-Free Director's Loans: The BIK Charge at 3.75% in 2026/27

The £10,000 line

Section 455 gets the attention, but an overdrawn loan account triggers a second, entirely separate charge. If a director's loan balance exceeds £10,000 at any point in the tax year and the director pays less than HMRC's official rate of interest — 3.75% for 2026/27 — the interest saved is a benefit in kind.

Cross £10,000 even for a day and the whole loan (not just the excess) is in scope for the year.

What it costs

The benefit is the difference between interest at the official rate and what was actually paid. On a £25,000 interest-free loan held all year:

• Deemed benefit: £25,000 × 3.75% = £937.50
• Director: income tax on £937.50 — £375 at the 40% higher rate
• Company: Class 1A NI at 15% on the benefit — £140.63 — reported on the P11D by 6 July and paid by 19 July (22 July electronically)

Small numbers next to a s455 bill — but they recur every year the loan stays out, and the P11D obligation comes with penalty exposure if missed.

Two ways to switch it off

• Pay interest at the official rate or better. Charge the director 3.75%+ on the balance and no benefit arises — no P11D entry, no Class 1A. The interest is income of the company. Board-minute the terms and actually collect the interest; an uncollected book entry invites challenge.
• Keep the balance at £10,000 or below all year. The threshold is a cliff edge, so watch the account through the year — a single month over the line brings the whole year's benefit into charge.

Watch the official rate itself

Since April 2025 HMRC can revise the official rate during the tax year, not just at the start. If you fix a loan's interest at today's 3.75% and the official rate rises mid-year, a benefit opens up for the remainder — worth a quarterly check (this site's calculator tracks the current rate).

BIK and s455 stack

They are independent charges on the same loan: a £25,000 interest-free loan outstanding past the deadline costs the company s455 of £8,937.50 (35.75% for post-April-2026 loans) and the annual BIK cycle above, until repayment. The full stack — s455, BIK, Class 1A, write-off costs — is exactly what the free Director's Loan Tax Calculator totals for you, including your exact repayment deadline.

This article is general guidance, not tax advice. Beneficial loan rules have exemptions (e.g. loans on commercial terms from lending businesses) not covered here.