What is the Official HMRC Director’s Loan Interest Rate?
As a company director, dipping into your business account to cover a short-term personal expense can feel incredibly convenient. But before you treat your limited company like a personal, interest-free overdraft, there is a catch you need to know about: HMRC is watching.
Because you are essentially "loaning" yourself company cash, HMRC wants to ensure you aren't gaining an unfair advantage over someone relying on a standard, interest-bearing bank loan. To keep the playing field level, they enforce an Official Rate of Interest (ORI). If you don't charge yourself at least this minimum rate, you could accidentally trigger a hefty personal tax bill.
The Current Official Rate (2025/26 and 2026/27)
For the current tax year, HMRC's official rate is set at 3.75%.
Because this is the highest the rate has been in over a decade, treating your company funds casually is riskier than ever. Keeping a close eye on your running balance is no longer optional—it's essential.
The £10,000 "Safety Zone"
Take a breath: you only need to worry about this interest rate if your total loan balance creeps above the £10,000 mark at any point during the tax year.
- Under £10,000: You are in the clear. No interest needs to be charged, and there is absolutely zero personal tax to pay.
- Over £10,000: Warning bells. If you don't charge yourself at least 3.75% interest, HMRC treats your "saved" interest as a Benefit in Kind (BiK). You will be slapped with personal Income Tax on the difference, and your company will be on the hook for National Insurance contributions.
What About the Company’s Tax?
Here is the kicker: while paying that 3.75% rate protects you from personal tax penalties, there is a completely separate tax trap waiting for your company if the loan isn't repaid quickly enough. This is known as the S455 Tax.
Learn more about S455 Tax and how to avoid it here.
The "Excel" Tip: Paying the Interest
If you do accidentally cross that £10,000 threshold, don't panic. You don't necessarily have to physically transfer the interest cash from your personal account back into the company bank account. Instead, you can simply have us add the 3.75% interest to your loan balance as a book entry at year-end. Keep in mind, this will increase the total amount you owe the company, so it requires a careful balancing act!
Key Takeaway: Monitor your director's loan closely. Staying under £10,000 keeps you in the clear, but going over means you must apply the 3.75% interest rate to avoid personal tax penalties.
Disclaimer: This post is intended for educational purposes and does not constitute formal tax or financial advice. For expert guidance regarding your director's loan accounts and tax liabilities, please contact the team at Excel Accountancy.
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