Director's Loan Account
A practical guide to understanding DLAs and their implications for you and your limited company.
Understanding the Director's Loan Account
A Director's Loan Account (DLA) is essentially a running ledger that captures every financial interaction between a director and their company — excluding regular salary, declared dividends, and approved expense claims. It shows whether the director currently owes money to the business, or vice versa.
If you've invested personal funds into your company — perhaps to cover early costs or bridge a temporary cash shortfall — the DLA reflects that the business is indebted to you. You're free to draw this money back at a later date without any tax consequences, as you're simply recovering your own capital.
On the other hand, if you've withdrawn more than your salary and dividends allow — for instance, by using the business account for personal expenses — the DLA records this as a debt you owe to the company.
Common Uses of a DLA
Investing in your company
Put personal money into the business when it's needed, building up a credit balance you can reclaim later.
Temporary personal borrowing
Take funds from the company on a short-term basis, with the plan to repay before the end of the accounting year.
Tax-free capital recovery
Withdraw funds you've previously lent to the company without incurring income tax or National Insurance.
Managing cash between you and the business
A flexible way to handle personal and business finances, as long as everything is accurately recorded.
When Your DLA Goes Into Debit
If you've taken out more than you've put in, your DLA is considered overdrawn. This carries real tax consequences that every director should understand.
What does overdrawn mean?
Your DLA becomes overdrawn when total withdrawals exceed total contributions — meaning you personally owe money back to your company.
This situation often arises when directors use the company card for personal purchases, draw more than their agreed salary and dividends, or take cash advances against anticipated future income. It's not against the law, but HMRC pays close attention to overdrawn director's loans, and there are specific tax charges that can apply.
What are the tax risks?
Section 455 Corporation Tax Charge
Should the outstanding balance remain unpaid nine months and one day after your company's financial year-end, HMRC will levy a 33.75% tax charge on the amount owed. The charge is eventually refundable once the loan is cleared, but it locks up a substantial sum of cash in the interim.
Benefit in Kind
When the loan balance tops £10,000 at any stage during the tax year without interest being charged at HMRC's official rate, it's classified as a taxable benefit. The director faces a personal tax liability, and the company must pay Class 1A National Insurance contributions on the benefit value.
Anti-Avoidance: The 30-Day Rule
HMRC has specific rules to prevent directors from temporarily clearing the loan around year-end and then re-borrowing straight after. If a repayment of £5,000 or more is followed by further borrowing within 30 days, the repayment may not count.
Options for Settling an Overdrawn DLA
Make a direct repayment
The simplest approach — transfer personal funds into the company to reduce or eliminate the balance. Provided this happens within nine months and one day of your year-end, the S455 charge won't apply.
Declare a dividend against the balance
Approve a dividend and apply it to reduce the DLA instead of withdrawing additional cash. Dividend tax will be due, but it sidesteps the S455 charge and is frequently the most tax-efficient solution. In practice, this is a paper exercise — no cash changes hands. The dividend amount is reported on your personal tax return, taxed at the appropriate rate, and its value is offset against the outstanding loan.
Process a bonus
Take a bonus through payroll and use it to pay down the DLA. While the bonus attracts income tax and NICs, the company benefits from a corporation tax deduction on the bonus amount.
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Common Questions
What is a director's loan account?
A director's loan account (DLA) tracks money flowing between you and your limited company. Any personal funds you put into the business, or money you withdraw beyond salary and dividends, are recorded here.
What happens if I owe money to my company?
If your DLA is overdrawn — meaning you owe money to the company — and the balance isn't repaid within nine months of the company's year end, the company must pay Section 455 tax at 33.75% on the outstanding amount to HMRC.
Can I use dividends to clear my director's loan?
Yes. Declaring dividends is one of the most common ways to reduce an overdrawn DLA. The dividend is a paper transaction — it doesn't need to be paid out in cash — it simply reduces the loan balance on the company's books.
Do I need to tell HMRC about my director's loan?
Yes, overdrawn director's loans must be reported on your company's Corporation Tax return. If the loan exceeds £10,000 at any point in the tax year, it must also be reported as a benefit in kind on a P11D form.
Can an accountant help me manage my DLA?
Absolutely. A qualified accountant can monitor your DLA throughout the year, advise on the most tax-efficient way to clear any balance, and ensure your company stays compliant with HMRC rules.
Looking for tailored guidance?
Every director's circumstances are unique. We always recommend discussing your options with a qualified accountant before deciding how to clear an overdrawn DLA — the optimal approach depends on your personal tax situation and the company's financial position.