# What is a Director's Loan Account?

Last updated: 19 October 2026
Category: Directors

**Quick answer:** A Director's Loan Account (DLA) tracks money you personally owe to or are owed by your company. It's overdrawn when you owe the company money (borrowed more than you've put in).

## Detailed explanation

A Director's Loan Account records all transactions between you personally and your company:

**Credits to DLA (company owes you)**:
- Personal funds you've put into the company
- Expenses you've paid personally for the business
- Salary owed but not yet paid

**Debits to DLA (you owe company)**:
- Money you've withdrawn beyond salary/dividends
- Personal expenses paid by company
- Company money used for personal purposes

**Tax implications of overdrawn DLA**:
If your DLA is overdrawn at your company's year-end:

1. **Section 455 tax**: Company pays 35.75% of the overdrawn balance to HMRC (33.75% for loans made before 6 April 2026). This is refundable when you repay the loan.

2. **Benefit in Kind**: If the loan exceeds £10,000 at any point, you must pay tax on the benefit of an interest-free loan (at the HMRC official rate).

3. **Bed and breakfasting rules**: You can't repay the loan before year-end and re-borrow within 30 days to avoid S455 tax.

**Best practice**: Keep your DLA in credit or at zero. If you need cash, declare dividends (if profits allow) rather than taking a loan.

Source: HMRC Director's Loan Account Rules

## Real-world examples

### Paying Personal Bills

You use your company credit card to pay for a £500 personal shopping trip. This £500 is a debit to your DLA, meaning you now owe the company £500, which needs to be repaid or accounted for as salary/dividend.

### Funding Startup Costs

You personally transfer £2,000 into your company's bank account to cover initial setup costs before the company starts generating revenue. This £2,000 is a credit to your DLA, representing money the company owes you.

### Unpaid Salary

Your company owes you £3,000 in unpaid salary at the end of the tax year. This £3,000 is a credit to your DLA. It's important to properly record this, even if not paid, as it can affect your personal tax liability when eventually drawn.

## Common mistakes to avoid

- Failing to keep accurate records of all transactions between yourself and the company, leading to discrepancies and potential tax issues.
- Treating the DLA as a personal piggy bank without considering the tax implications of overdrawing it, especially the Section 455 tax.
- Not documenting the purpose of each transaction in the DLA, making it difficult to justify expenses if HMRC investigates.
- Assuming an overdrawn DLA automatically constitutes a taxable benefit-in-kind, overlooking options like repayment or declaring a dividend/salary.

## Frequently asked questions

### What happens if I can't repay my overdrawn DLA within 9 months and 1 day of the company's year-end?

Section 455 tax is charged on the outstanding amount. This tax is effectively a deposit, which is refunded when the loan is repaid or written off (subject to further tax implications).

### Can I 'write off' an overdrawn DLA?

Yes, but writing off an overdrawn DLA is treated as a distribution to you (either salary or dividend) and is subject to income tax and potentially National Insurance contributions, depending on your tax bracket and available dividend allowance.

### How does interest apply to a Director's Loan Account?

If you're borrowing a significant amount from your company, HMRC may consider it a beneficial loan and charge you income tax on the 'benefit' of the low or no-interest loan. The official rate of interest is set by HMRC and changes periodically. Check the current rate.

### What records should I keep for my DLA?

Keep a running balance of all credits and debits. For each transaction, note the date, amount, and a brief description of what the money was used for (e.g., 'personal expense - shopping', 'director's contribution - startup funds').

## Practical tips

- Reconcile your DLA regularly, ideally monthly, to identify and correct any errors promptly.
- Use a separate bank account for personal and business transactions to minimize confusion and simplify record-keeping.
- Set a repayment plan if your DLA is overdrawn to avoid Section 455 tax; a documented repayment schedule demonstrates intent to repay.
- Before taking any money from the company beyond your salary, carefully consider whether it should be treated as a dividend, salary, or a loan and the respective tax implications.