Directors Loan Account
Director's Loan Account
Understand how a Director's Loan Account (DLA) works, when tax can become payable, the £10,000 benefit-in-kind threshold and what happens when your loan account is overdrawn.
What is a Director's Loan Account?
A Director's Loan Account (DLA) records money passing between a director and their limited company that is not salary, a dividend, an expense repayment or repayment of money already owed. If you take more money from the company than it owes you, the account becomes overdrawn and tax consequences can arise. If you put your own money into the company, the account will normally be in credit.
Think of your DLA as a running balance between you and your company. A positive or credit balance generally means the company owes you money. An overdrawn balance means you owe money to the company.
A limited company is legally separate from its directors and shareholders. Money in the company's bank account therefore belongs to the company, not automatically to the director. This distinction is why withdrawals that are not salary, dividends, expenses or repayment of money already owed need to be recorded correctly.
Director's Loan Account Tax Rules for 2026/27
These are some of the key figures directors should know when managing an overdrawn Director's Loan Account.
Is Your Director's Loan Account in Credit or Overdrawn?
DLA in credit
The company owes you money.
This commonly happens when you:
- lend personal money to the company;
- pay company expenses personally;
- leave money due to you inside the business.
Repayment of the amount genuinely owed to you will normally be a repayment of capital rather than salary or a dividend.
Overdrawn DLA
You owe the company money.
This commonly happens when you:
- withdraw company money for personal use;
- make personal purchases using company funds;
- take drawings that have not been treated as salary or valid dividends.
An overdrawn balance can create Corporation Tax, benefit-in-kind and reporting consequences.
What Goes Through a Director's Loan Account?
A DLA should provide a clear record of relevant transactions between the director and company.
| Transaction | Typical DLA Effect |
|---|---|
| Director lends £10,000 to the company | Credits the DLA – company owes the director |
| Director pays a £500 company bill personally | Usually credits the DLA by £500 |
| Company repays money previously lent by director | Reduces the credit balance |
| Director withdraws £5,000 for personal use | Reduces a credit balance or creates/increases an overdrawn balance |
| Company pays a director's personal expense | May debit the DLA unless correctly treated another way |
The exact accounting treatment depends on the nature of the transaction. A payment should not simply be posted to a DLA to avoid considering whether it is actually salary, a dividend, an expense or another form of remuneration.
What Happens if a Director's Loan Account Is Overdrawn?
An overdrawn Director's Loan Account means the director owes money to the company. For owner-managed companies, this can occur when a director withdraws funds before determining how those withdrawals will ultimately be treated.
Several different tax rules may then need to be considered.
Year end
Establish the amount owed by the director at the end of the company's accounting period.
Repayment deadline
Check whether the relevant balance is repaid, released or otherwise dealt with within nine months and one day after the accounting period ends.
Tax & reporting
Where the rules apply, calculate any Section 455 charge and consider CT600A and benefit-in-kind reporting.
Director's Loan Account: The 9-Month Rule
Where a close company makes a loan or advance to a shareholder or other participator, Section 455 Corporation Tax can apply if the relevant amount remains outstanding after the statutory repayment period.
The important date is generally nine months and one day after the end of the company's accounting period.
Section 455 is unusual because the tax paid by the company can normally be reclaimed after the qualifying loan has subsequently been repaid, released or written off, subject to the applicable rules and timing restrictions. It should therefore be viewed as a potentially recoverable company tax charge rather than a conventional permanent Corporation Tax cost.
Director's Loan Account Tax Example
£20,000 overdrawn Director's Loan Account
Assume a director-shareholder takes a £20,000 loan from their close company after 6 April 2026 and the relevant £20,000 remains outstanding beyond the nine-month-and-one-day deadline.
The company could therefore face a £7,150 Section 455 tax charge, subject to the detailed rules applying to the loan.
If the qualifying loan is subsequently repaid, released or written off, the company may be able to claim relief for the Section 455 tax. The relief is not necessarily available immediately, so the charge can still have a significant cash-flow impact.
What Happens if a Director's Loan Exceeds £10,000?
A separate set of rules needs to be considered where the total outstanding beneficial loans to a director or employee exceed £10,000 at any point during the tax year.
If the director pays no interest, or pays interest below HMRC's official rate, a taxable beneficial loan benefit can arise. Broadly, the taxable benefit is based on the difference between the interest calculated under the relevant HMRC rules and the interest actually paid by the director.
The official rate applying to beneficial loans from 6 April 2026 is 3.75%. Paying sufficient qualifying interest can therefore affect whether a taxable beneficial-loan benefit arises.
Where a taxable benefit arises, the director can face Income Tax on the benefit and the company can have a Class 1A National Insurance liability. Appropriate benefit reporting also needs to be considered.
How Can You Clear an Overdrawn Director's Loan Account?
Depending on the circumstances, an overdrawn balance may potentially be reduced or cleared in several ways. The accounting and tax treatment should be checked before entries are made.
| Method | Points to Consider |
|---|---|
| Repay the company | The director pays money back to the company, reducing the amount owed. |
| Credit a valid dividend | May reduce the loan where the company has sufficient distributable reserves and the dividend is validly declared. Personal dividend tax may arise. |
| Salary or bonus | Remuneration may be credited against the account but PAYE and National Insurance consequences must be considered. |
| Expense reimbursement | Genuine business expenses personally incurred by the director may be credited where properly supported and allowable. |
| Loan write-off or release | Can create personal tax and National Insurance consequences and should not be treated as a simple tax-free way of clearing the account. |
Whether a dividend or salary is appropriate depends on the company's profits, reserves, payroll position and the director's personal tax circumstances. Entries should reflect transactions that have genuinely occurred rather than being retrospectively relabelled purely to obtain a preferred tax result.
Can You Repay a Director's Loan and Immediately Borrow It Again?
Simply repaying an overdrawn DLA shortly before the tax deadline and then borrowing the money back may not achieve the intended Section 455 result.
HMRC rules contain anti-avoidance provisions commonly referred to as the "bed and breakfasting" rules. In particular, special matching rules can apply where repayments of more than £5,000 are associated with further relevant borrowing within a 30-day period.
There are also rules that can apply to larger repayments where arrangements exist for further borrowing. This is an area where professional advice is particularly valuable.
What if the Company Owes the Director Money?
If you have lent money to your company or paid company expenses personally, your DLA may instead be in credit. This means the company owes money to you.
The company can generally repay the capital amount it genuinely owes you without that repayment itself being treated as salary or a dividend.
You lend your company £15,000
Your Director's Loan Account is credited by £15,000. If the company later repays that £15,000 to you, it is normally repaying its debt rather than paying you earnings or a dividend.
This can make a credit DLA useful for owner-managed businesses where a director initially provides working capital to the company.
Can a Director Charge Their Company Interest?
Yes. A director who has lent money to their company may agree for the company to pay interest on the loan.
The interest received is generally taxable income for the director. The company will normally deduct basic-rate Income Tax from qualifying yearly interest before paying the net amount to the director and account for the deduction to HMRC using the appropriate CT61 procedure.
Director lends £20,000 at 5%
Annual gross interest would be:
If the company is required to deduct Income Tax at 20%, £200 would be deducted and £800 paid to the director. The gross £1,000 interest is relevant when considering the director's personal tax position.
How Should You Record a Director's Loan Account?
Good bookkeeping is particularly important because the tax treatment depends on the actual transactions and the balance outstanding at relevant dates.
Record every transaction
Record money paid to or received from each director and identify what the payment represents.
Reconcile regularly
Compare the DLA ledger with bank transactions and supporting records rather than waiting until the annual accounts are prepared.
Review before year end
Identify an overdrawn balance early enough to consider the tax consequences and available legitimate options.
Where a company has several directors, separate loan-account records should normally be maintained so that amounts due to and from each person can be identified clearly.
Where Does a Director's Loan Account Appear in Company Accounts?
The year-end balance forms part of the company's balance sheet. The presentation and disclosures required depend on whether the company owes the director money or the director owes money to the company, together with the accounting framework and circumstances involved.
An accountant preparing the annual accounts will normally reconcile the DLA and consider whether additional disclosure or tax reporting is required.
If an overdrawn loan falls within the close-company loan rules, details may also need to be included in the company's Corporation Tax return using CT600A.
Common Director's Loan Account Mistakes
| Mistake | Why It Matters |
|---|---|
| Assuming company money belongs personally to the director | A limited company is a separate legal entity. |
| Taking dividends without sufficient distributable profits | An unlawful or incorrectly declared dividend may create accounting and tax complications. |
| Ignoring the £10,000 threshold | A beneficial-loan tax charge and employer Class 1A NIC may arise. |
| Missing the nine-month-and-one-day deadline | The company may incur a Section 455 charge. |
| Repaying and immediately re-borrowing | Anti-avoidance matching rules may prevent the repayment having the expected effect. |
| Leaving the DLA until the accounts are prepared | By then, opportunities to manage the balance before important dates may have been lost. |
Director's Loan Account FAQs
What is a Director's Loan Account?
Is a Director's Loan Account taxable?
How much can a director borrow from their company?
What is the £10,000 Director's Loan Account rule?
What is the Director's Loan Account 9-month rule?
What is the Section 455 tax rate in 2026/27?
What is HMRC's official interest rate for director's loans in 2026/27?
Can I repay a director's loan and take it out again?
Can a Director's Loan Account be written off?
Can I withdraw a Director's Loan Account that is in credit?
Does a Director's Loan Account appear on the balance sheet?
Do I need to declare a Director's Loan Account on Self Assessment?
Director's Loan Account: Key Points to Remember
- A DLA records relevant financial transactions between a director and their limited company.
- An in-credit DLA normally means the company owes the director.
- An overdrawn DLA means the director owes the company.
- For relevant loans made from 6 April 2026, the Section 455 rate is 35.75%.
- The key Section 455 deadline is generally nine months and one day after the accounting period ends.
- Loans exceeding £10,000 can bring the beneficial-loan rules into consideration.
- HMRC's official beneficial-loan interest rate from 6 April 2026 is 3.75%.
- Repaying a loan and quickly borrowing again can fall within anti-avoidance rules.
- Reviewing the DLA before the company's year end is usually much better than discovering a problem when the annual accounts are prepared.
Need Help With an Overdrawn Director's Loan Account?
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