For an owner-managed business, a director's loan account (DLA) records money moving between you (as a director/shareholder) and your company, showing whether you owe the company or the company owes you. It is a crucial financial tool that tracks all transactions that are not classified as salary, dividends, or legitimate business expenses, helps ensure compliance with tax regulations, and provides a clear record of the company's financial position.
What can affect your DLA?
Understanding how your Directors’ Loan Account works is an important part of managing cash flow and avoiding unnecessary tax issues.
- Increasing what you owe the company (money out).
- Personal withdrawals that aren’t treated as salary or dividends.
- Personal expenses or bills paid by the company on your behalf.
- Reducing what you owe the company (money in).
- Cash repayments you make to the company.
- Dividends are declared to clear the balance.
- Repayment of expenses that are due back to the company.
Why an overdrawn DLA can be a problem
If your DLA is overdrawn at the year-end, there can be tax implications.
- s455 tax (company): If the balance isn’t cleared within nine months and one day after the year-end, the company must pay tax at 33.75% of the outstanding amount (increasing to 35.75% from 6 April 2026). The good news is this tax is refundable once the loan is repaid.
- Benefit in kind (you as director): If the loan balance goes over £10,000 at any point and little or no interest is charged, you may be personally taxed on a deemed interest benefit. The company will also need to pay Class 1A NIC and report this on a P11D.
Good practice tips
- Keep a simple, up-to-date DLA record.
- Clear overdrawn balances with dividends (where profits allow) or cash before the deadline.
- Avoid short-term repayments followed by quick re-borrowing, as this can cause issues with HMRC.
How we can help
We can prepare management accounts to confirm profitability before dividends are declared and help you clear Directors’ Loan Accounts in the most tax-efficient way possible.
For more detailed advice, please get in touch with your usual Crowe contact.
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