What are the rules for a Director's Loan Account in the UK?

A Director's Loan Account (DLA) is a running record in your company's accounts of all transactions between you as a director and the company that are not salary, dividends, or expenses. It can be in credit (the company owes you money) or overdrawn (you owe the company money). The DLA is a formal accounting record and has significant tax and legal consequences.

When does a DLA arise? A DLA becomes overdrawn when a director takes money from the company that is not a formally declared salary or dividend. This includes: drawing money from the business bank account for personal use; paying personal expenses from the company account; receiving goods or services from the company for free or below market value; and any other transfer of value from the company to the director that is not formally documented as pay.

A DLA is in credit when the director has previously lent money to the company, paid company expenses personally and not yet been reimbursed, or made capital contributions that have not been repaid.

Tax consequences of an overdrawn DLA: if the DLA is overdrawn at the company's year end and remains so nine months after the year end, the company faces a S455 tax charge at 35.75% on the outstanding balance (33.75% for loans made before 6 April 2026). This is reported on the Corporation Tax return and paid with the Corporation Tax bill. The charge is refundable when the director repays the loan, but with a nine-month delay on the refund.

Benefit in kind on a DLA: if the DLA is overdrawn by more than £10,000 at any point during the year, HMRC treats the director as receiving a benefit in kind in the form of cheap credit. The benefit is calculated on the difference between interest at the HMRC official rate and interest actually charged. The director pays income tax on this benefit, and it must be reported on form P11D. To avoid the benefit in kind, the company should charge the director interest at the official rate on balances over £10,000.

Company law requirements: loans to directors over £10,000 require shareholder approval under Section 197 of the Companies Act 2006. In a sole director, sole shareholder company this is a formality (you approve your own loan), but it should be minuted. Loans over £200,000 may require additional disclosure in the company's annual accounts. Failure to obtain required approval can make the loan transaction unlawful.

Anti-avoidance: HMRC's 30-day rule means that if you repay an overdrawn DLA to beat the nine-month S455 deadline and then re-draw within 30 days, the loan is treated as if it was never repaid. The S455 charge still applies. This prevents directors from temporarily topping up their DLA with personal funds every nine months to avoid the tax.

DLA write-offs: if the company formally writes off (forgives) the director's loan, the amount written off is treated as a distribution, similar to a dividend. The director pays income tax at dividend tax rates on the forgiven amount. The company cannot reclaim the S455 charge on a written-off loan.

DLA in credit: when the DLA is in credit (the company owes the director), the director can draw down the credit balance tax-free. This is not income; it is the director recovering their own money from the company. However, if the company pays interest on the credit balance to the director, that interest is income in the director's hands and must be declared on Self Assessment.

Best practice for DLA management: review the DLA balance at least monthly; keep it in credit or at zero where possible; document all transactions passing through the DLA; if the DLA becomes overdrawn, plan a repayment before the nine-month S455 trigger date; charge interest at the official rate if the balance exceeds £10,000; and reconcile the DLA against the company's bank statements quarterly to catch posting errors early.

AccountsOS tracks the DLA balance as transactions are recorded and flags overdrawn positions. Finn can alert you when the balance is approaching levels that require action.