Director’s Loan Bed and Breakfasting Rules
Director’s loan bed and breakfasting rules can prevent a temporary repayment from reducing an earlier s455 exposure where the director repays money and then borrows again.
HMRC applies specific anti-avoidance rules to match certain repayments against later borrowing. The timing, value and circumstances of each transaction therefore need to be reviewed carefully.
What Does Director’s Loan Bed and Breakfasting Mean?
Bed and breakfasting describes a situation where a director or participator temporarily repays an amount owed to the company and then receives another loan or advance shortly afterwards.
HMRC’s concern is that a short-lived repayment should not automatically produce relief from section 455 if substantially the same funds are then extracted again.
The legislation therefore contains matching rules that can treat the repayment as clearing the newer loan instead of the earlier loan.
Temporary Repayment Should Not Automatically Create s455 Relief
HMRC describes bed and breakfasting as temporary repayment of a participator’s debt followed by a fresh loan or advance of the same or a similar amount.
Before Company Year End
A loan may be repaid shortly before the accounting date and then borrowed again shortly afterwards.
Before the 9-Month Point
Repayment may be made shortly before the section 455 payment point and then followed by new borrowing.
Artificial Relief
The legislation is designed so that only genuine, enduring repayment normally produces the intended relief.
The Director’s Loan 30-Day Rule
HMRC’s mechanical 30-day rule applies where the statutory conditions are met for repayments and new relevant borrowing.
HMRC states that repayments totalling at least £5,000 and new relevant loans totalling at least £5,000 can be matched under the rule.
The repayment is then treated as repaying the newer loan to the extent of the matching amount, rather than the older loan for which s455 relief would otherwise have been available.
Repayment Followed by the Same Amount Being Borrowed Again
The repayment can be matched against the new loan rather than the earlier balance, so it may not provide section 458 relief for the original loan.
What If the Repayment Is Larger Than the New Loan?
Where the amount repaid exceeds the later matched borrowing, the excess can potentially remain available to reduce the earlier loan.
HMRC’s own examples illustrate this principle: the repayment is matched against the new loan first, while the excess may be available for section 458 relief on the old loan.
The £15,000 Arrangements Rule
Waiting longer than 30 days does not always avoid the anti-avoidance rules.
HMRC has a separate arrangements rule that can apply where the amount outstanding immediately before repayment is at least £15,000 and, at that time, arrangements exist for at least £5,000 of further relevant borrowing.
This acts as a backstop where planned re-borrowing falls outside the mechanical 30-day rule.
Waiting 31 Days Is Not Automatically Safe
A common misconception is that any further borrowing after 30 days is automatically outside the bed-and-breakfasting rules.
Mechanical Rule
The statutory 30-day rule applies according to its own matching conditions.
Arrangements Rule
Planned further borrowing can still be caught where the separate statutory conditions are satisfied.
HMRC’s manual confirms an exclusion where the repayment itself gives rise to an Income Tax charge on the relevant participator or associate.
Dividend or Bonus Credits Can Fall Outside the Matching Rule
HMRC gives the example of a dividend credited directly to the loan account where the dividend is taxable on the shareholder.
HMRC also refers to a bonus subjected to PAYE and National Insurance before being credited to the loan account.
This exclusion is fact-specific. It should not be assumed that every transfer involving dividend or remuneration automatically qualifies.
Read Using Dividends to Clear a Director’s Loan →The Way a Dividend Is Used Can Matter
HMRC distinguishes between a dividend being credited directly to the same company’s loan account and money first leaving the company before being reintroduced.
HMRC states that if a dividend is paid out in cash and is later paid back into the company, the repayment itself is not the transaction giving rise to the Income Tax charge.
The exclusion should therefore be applied carefully to the actual transaction sequence.
Repeated Borrowing Can Make the Calculation More Complex
A director may make several repayments and receive several advances during the same period.
Why Bed and Breakfasting Often Appears Near the s455 Deadline
Section 455 is closely linked to the post-year-end repayment period.
A director may be tempted to repay a loan just before the relevant deadline and then draw the money again after the deadline has passed.
HMRC specifically identifies this type of temporary repayment as a reason the anti-avoidance provisions exist.
Read the Director’s Loan 9 Month Rule →What Should Be Reviewed Before Claiming s455 Relief?
HMRC’s anti-avoidance rules are designed to prevent temporary repayments producing relief where the funds are effectively extracted again.
Substance Matters More Than a Temporary Zero Balance
A director’s loan account reaching zero for a few days does not by itself determine the tax result.
The company should consider how the repayment was funded, whether new borrowing occurred and whether arrangements for further borrowing existed when the repayment was made.
Related Director’s Loan Guides
Bed and Breakfasting Depends on Accurate Transaction Records
The calculation normally requires detailed bookkeeping, a reconciled director’s loan account and accurate Corporation Tax reporting.
Director’s Loan Bed and Breakfasting Resources
Director’s Loan Bed and Breakfasting FAQs
What is director’s loan bed and breakfasting?
It generally describes temporary repayment of a director’s or participator’s debt followed by further borrowing, where HMRC’s matching rules can prevent the earlier loan from obtaining relief.
What is the 30-day rule for director’s loans?
HMRC’s rule can apply where repayments total at least £5,000 and relevant new borrowing of at least £5,000 occurs within the statutory matching period.
What happens when the 30-day rule applies?
The repayment can be matched against the new borrowing rather than the older loan, potentially leaving the older loan within the section 455 charge.
Can I simply wait more than 30 days before borrowing again?
Not necessarily. The separate arrangements rule can apply where at least £15,000 was outstanding before repayment and arrangements existed for at least £5,000 of further borrowing.
Does the £15,000 rule replace the 30-day rule?
No. HMRC states that the 30-day rule takes priority where it applies. The arrangements rule acts as a separate backstop.
Does a dividend credited to the DLA count as bed and breakfasting?
HMRC provides an exclusion where the repayment itself gives rise to an Income Tax charge, and specifically gives the example of a taxable dividend credited directly to the loan account.
What about a bonus credited to the director’s loan?
HMRC also gives the example of a bonus subjected to PAYE and National Insurance before being credited to the loan account.
Can a repayment still partly reduce the old loan?
Yes. Where the repayment exceeds the matched new borrowing, the excess may remain available to reduce the earlier loan, subject to the rules.
Does bed and breakfasting affect CT600A?
It can. Where the matching rules prevent relief from applying to the original loan, the resulting s455 and CT600A position should reflect that treatment.
Check the Bed and Breakfasting Rules Before Claiming s455 Relief
Tell us the original loan balance, repayment dates, later withdrawals and company year end so the matching rules can be reviewed.
Tell Us About the Repayment and Re-Borrowing
The dates and values of the transactions are particularly important for this type of review.