Understanding the Director’s Loan Account: What You Really Need to Know
If you’re a director of a UK limited company, you might’ve come across the term Director’s Loan Account (DLA) and thought, “Ah, free money!” Sadly, HMRC doesn’t share your enthusiasm. The DLA isn’t a piggy bank, it’s a formal accounting record — and ignoring the rules can result in tax complications, penalties, and a very grumpy accountant.
What is a Director’s Loan Account?
A Director’s Loan Account is the running balance between a director and their company. If you take out more money than you’ve put in (and it isn’t salary, dividend, or expense reimbursement), it’s classified as a loan. Conversely, if you’ve paid for company expenses out of your own pocket, or put funds into the business, the company owes you — and that’s still recorded in the DLA.
Simple? Sure. But also, deeply regulated.
Key Rules Around DLAs
1. You Must Repay the Loan Within 9 Months of Year-End
If your DLA is overdrawn (i.e. you owe the company), you need to repay it within nine months and one day after the company’s year-end. Otherwise, your company must pay a temporary tax — called Section 455 tax — at 33.75% of the loan amount.
This tax isn’t lost forever. It can be reclaimed, but only after you repay the loan. HMRC doesn’t do IOUs.
2. Write Off the Loan? Expect Personal Tax
If the company decides to write off the loan (how generous), HMRC steps in to treat the amount as income. The written-off loan becomes a benefit in kind, and you’ll be taxed on it personally — possibly at dividend tax rates — plus the company may owe Class 1 National Insurance.
In other words: “You can’t just delete the debt and walk away.”
3. Over £10,000? Welcome to Benefit in Kind Territory
If your loan exceeds £10,000 at any point in the year (even just for a day), it’s a benefit in kind. That means:
- It must be reported on your P11D form,
- You may owe income tax on the deemed interest,
- And your company might owe Class 1A NICs.
Unless you charge interest at HMRC’s official rate (2.25% as of 2025), it’s treated as a cheap loan, and HMRC wants its cut.
4. Bed and Breakfasting is Not a Loophole
Don’t think you can repay the loan just before the 9-month deadline, then take it back out the next day. HMRC sees through this. If you repay more than £5,000 and take out a similar amount within 30 days, the repayment is effectively ignored. It’s called “bed and breakfasting,” and HMRC doesn’t approve of your late-night snacks.
Final Thought
Director’s Loan Accounts can be useful when managed correctly. But treat them casually, and they’ll bite you. Keep accurate records, work closely with your accountant, and don’t confuse “company money” with “your money” — no matter how much you want to.
It’s your company, sure. But HMRC still wants to be your silent business partner — especially when tax is involved.
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