Address
Manchester, working with clients UK-wide
Work Hours
Monday to Friday: 7AM - 7PM
Weekend: 10AM - 5PM
As a director, you and your company are legally separate — company funds aren’t personal funds. A Director’s Loan Account (DLA) is simply the running balance of money moving between you and the company outside of payroll or a properly declared dividend, and it answers one question: does the company owe you, or do you owe it? If money leaves the company and isn’t processed as salary through payroll, or declared and documented as a dividend at the time, there’s no third option — it passes through the director’s loan account whether you meant it to or not.
When you owe the company
This happens when you transfer money to yourself during the year, pay personal expenses from the company account, or take drawings without declaring a dividend. There are four legitimate ways to clear the balance: repaying cash back to the company, having salary processed properly through payroll and credited to the loan account instead of paid out, declaring a dividend (only where the company has sufficient distributable profits — this doesn’t apply if the company hasn’t actually made a profit), or crediting the account with genuine business expenses you’ve paid personally, such as mileage.
Timing matters more than intention here. HMRC looks at what actually happened at the time, not what you meant to do — if money is drawn first and a salary or dividend is voted later, the original withdrawal still created a loan in the meantime.
What an overdrawn loan actually costs
If the loan is still outstanding nine months after the company’s year-end, the company has to pay a temporary Corporation Tax charge under Section 455 — 35.75% of the outstanding balance for loans advanced on or after 6 April 2026 (33.75% for loans made before that date). It’s refundable once the loan is repaid, but it’s real cash out of the business in the meantime, and HMRC’s "bed and breakfasting" rule stops you sidestepping it by repaying the loan just before the deadline and redrawing more than £5,000 within 30 days — that’s treated as if the repayment never happened.
Separately, if the loan exceeds £10,000 at any point in the tax year and you’re not charged interest at HMRC’s official rate — currently 3.75% — a personal Benefit in Kind tax charge can arise, along with Class 1A National Insurance for the company. Charging interest at the official rate and actually paying it in cash avoids this; booking it as an accounting entry alone isn’t enough.
Things that catch people out
- Treating the company bank account as a personal account "just this once"
- Assuming intention protects you — a loan created mid-year is still a loan, even if you always meant to vote a dividend
- Repaying an overdrawn loan just before the 9-month deadline and redrawing it shortly after
- Not charging (and actually paying) interest at the official rate once the £10,000 threshold is crossed
- Only reviewing the loan account at year-end, when a large or persistent balance has already built up unnoticed
If the company owes you instead — because you’ve introduced personal funds or left salary or dividends unpaid — the position is more straightforward: you can withdraw that balance tax-free, with no Section 455 charge or Benefit in Kind to worry about. The safest habit either way is reviewing the loan account through the year rather than finding out about it at year-end. If you’d like a second pair of eyes on where your director’s loan account currently stands, get in touch — or take a look at how we support limited companies.
Get in touch