A limited company owns its money. So, when a director takes cash for personal use, the company must record it properly. A Director’s Loan Account (DLA) tracks money that moves between the director and the company outside normal pay.
What is a Director’s Loan Account?
A Director’s Loan Account works like a running record between you and your company. You record every movement, along with dates and descriptions.
A DLA can show one of two positions:
| In Credit | The company owes you money |
| Overdrawn | You owe the company money |
HMRC expects accurate and up-to-date records. Therefore, a tidy DLA reduces errors and unnecessary questions later. Many people also refer to this as a Director’s Current Account. Both terms describe the same record.
What Counts as a Director’s Loan?
A director’s loan is when you take money from the company and it does not fall into one of the following categories:
- Salary processed through payroll
- Dividends paid from company profits
- Reimbursement of business expenses you paid personally
- Repayment if money you previously paid into, or loaned to, the company
If you withdraw funds for personal use, the company usually treats the amount as a loan. You can also create a director’s loan accidently.
For example: You might pay a personal bill from the company bank account. In this scenario, the transaction still counts as a loan.
Can You Use a Director’s Loan for Any Purpose?
Yes. You can use a director’s loan for almost any purpose. However, tax rules can apply quickly.
Most directors use Director’s Loan Accounts for short-term or one-off needs, such as:
- Covering an unexpected personal expense
- Bridging a gap between dividend payments
- Managing temporary cash flow pressure
Even so, regular borrowing often creates extra administration and tax risk.
How Much Can You Borrow?
There is no legal limit restricting the amount you can borrow. Nevertheless, you must consider what the company can realistically afford. If you borrow too much, the company may struggle to pay suppliers or meet other commitments.
In addition, tax thresholds apply:
- £10,000 at any point in the tax year can trigger Benefit In Kind rules
- More than £5,000 can trigger anti-avoidance rules if you repay and quickly withdraw again
As a result, large or frequent withdrawals can increase both tax exposure and scrutiny.
Loans Over £10,000
If your Director’s Loan Account exceeds £10,000 at any point in the tax year, HMRC treats the loan as a Benefit In Kind.
This treatment requires:
- Reporting the benefit (usually on a P11D)
- Paying Class 1A National Insurance on the benefit value
- Declaring the benefit on your Self Assessment tax return
Even a short period above £10,000 can trigger these obligations.
If you charge interest below HMRC’s official rate, HMRC treats the difference as a taxable benefit. For the 2025/26 tax year, the official rate stands at 3.75% from 6 April 2025.
To avoid a benefit charge, you will need to:
- Charge interest at or above the official rate
- Ensure the interest is actually paid during the tax year
What Should You Record in Your Director’s Loan Account?
You should record every transaction that sits outside salary, dividends and expense claims.
These can include:
- A transfer from the company bank account to your personal account
- A personal purchase through the company card
- A business bill you paid personally
- Money you introduced to support company cash flow
- An accidental overpayment of wages or director fees
You should also keep supporting paperwork. For instance, you can retain receipts and add short notes explaining each entry.
These should include:
- The date and amount
- A short explanation of the transaction
- Details of any repayment plan
- Interest charged or paid (if relevant)
Where Does the DLA Appear in the Accounts?
At the financial year end, the Director’s Loan Account balance appears in the Balance Sheet.
- The accounts show a debtor balance if you owe the company money
- The accounts show a creditor balance if the company owes you money
Because filed accounts sit on public record, a large overdrawn balance can attract attention. Therefore, it makes sense to monitor the position throughout the year.
When the Company Owes You Money
A credit Director’s Loan Account means the company owes you funds. You can usually withdraw this balance without additional tax. Even so, you should review the company’s cash position before doing so.
A DLA also records money you lend to the company. The company does not pay Corporation Tax on funds you introduce. If you charge interest, the company treats the interest as a business expense. You then declare the interest as personal income on your Self Assessment. The company usually deducts Basic Rate Income Tax at 20% before paying you. It must then report and pay this tax, often quarterly, using Form CT61.
Director’s Loan Account Deadlines
A Director’s Loan Account involves two important timing points.
1. The Company Year End
If you owe the company money at the year end, the balance must appear in the Annual Accounts. Although, this step does not automatically create tax, it makes the position visible.
2. Repayment Within 9 Months and 1 Day
If the DLA remains overdrawn at the year end, you must repay it within 9 months and 1 day after the end of the Corporation Tax accounting period. If you miss this deadline, the company may face a special Corporation Tax charge.
For example: If the company year end is 31 March, the repayment deadline is 1 January the following year.
You should aim to repay well before accounts filing. This allows time to finalise and submit accurate returns. If you fully repay the loan within the same accounting period, the company avoids Section 455.
If you fully repay the loan after the year end but within 9 months, the company generally avoids paying Section 455. However, the year-end balance still requires disclosure on the tax return.
Repaying a Director’s Loan
You can clear an overdrawn Director’s Loan Account in different ways.
1. Direct Repayment
You can transfer personal funds back to the company. This method keeps the process straightforward.
2. Dividend Credit
If sufficient profits exist, you can declare a dividend and credit it to the DLA. However, you must still pay personal dividend tax. Additionally, the company must have adequate reserves.
3. Salary or Bonus
You can increase salary or award a bonus to clear the loan. However, this route creates PAYE and National Insurance liabilities.
What If the Loan Remains Unpaid?
If the loan remains unpaid after 9 months and 1 day, the company must pay Section 455 on the outstanding balance. HMRC will also charge interest until payment or repayment occurs. Consequently, the company faces both reduced cash flow and a temporary tax charge.
What If the Company Writes Off the Loan?
If the company writes off the loan, you receive a personal benefit. HMRC then treats the amount as income for tax purposes. You must declare it on your Self Assessment tax return. The company may also need to account for National Insurance through payroll.
The company may also need to account for National Insurance through payroll. In insolvency situations, a liquidator may still pursue repayment. Therefore, you should not ignore an overdrawn Director’s Loan Account.
The “Bed and Breakfasting” Rules
Some directors once repaid loans just before the deadline and withdrew the money again shortly after. HMRC not blocks this practice.
If you repay more than £5,000 and then withdraw £5,000 or more within 30 days, HMRC may treat the repayment as ineffective. Similarly, if you clear a loan above £15,000 by arranging a replacement loan, HMRC can apply Section 455.
Section 455 Tax Explained
When a Close Company lends money to a director who is also a shareholder, HMRC may apply Section 455. The company pays this charge, not the director personally.
- Loans made before 6 April 2026 use a rate of 33.75%
- Loans made on or after 6 April 2026 use a rate of 35.75%
HMRC treats this tax as temporary. Therefore, the company can reclaim it once you repay the loan. However, HMRC does not refund interest charged on late paid tax. So, delays can still cost money.
The company reports the balance on the Company Tax Return and usually completes a CT600A to disclose the loan.
Reclaiming Section 455
The company can reclaim Section 455 once you repay, release or write off the loan. However, you can only claim after 9 months and 1 day from the end of the accounting period in which repayment occurs. You must also submit the claim within 4 years in most situations.
Depending on timing, the company may use:
- CT600A (if claiming within two years of the relevant period)
- Form L2P (If claiming later or relating to a different period)
HMRC typically repays by bank transfer, although it may issue a cheque.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.