Director Loan Accounts
This month we’re tackling a topic that quietly causes confusion for many limited company directors – Director Loan Accounts (DLAs).
If you’ve ever moved money between yourself and your company that wasn’t a salary or a dividend (and let’s face it, who hasn’t?), you’ve probably already used a DLA – whether you realised it or not. When managed properly, there’s no problem. When not… well, let’s just say HMRC loves a messy one.
So, here are some of the most common questions we get asked.
Q: If I pay money into my company, what are the tax implications?
A: The good news - if you lend your company money, you can take it back out tax-free. It’s simply the company repaying what it owes you.
Think of it like lending a mate £100 for lunch - when they pay you back, you don’t expect the taxman to take a slice!
Q: What if I accidentally pay for something business-related personally?
A: Don’t panic — it happens!
In your bookkeeping software, you should:
Post the original expense to your Director’s Loan Account (DLA), not as a business expense.
Then, when you repay the company, post that repayment to the same DLA.
The two entries will offset one another, keeping everything balanced and neat.
If this is a one-off, no harm done. But if it becomes a regular habit, HMRC may start viewing these as personal benefits – and that can trigger extra personal tax and National Insurance.
So, try to keep these “accidental spends” the exception, not the rule.
Q: What if I take money out of the company?
A: It depends on why you’re taking it out.
Loan repayment - if the company owes you (you’ve lent it money), you can withdraw those funds tax-free.
Salary - that’s fine. It’s treated as normal PAYE income and taxed through your payroll.
Dividend - that’s fine too, as long as your company has enough profits or reserves to pay one.
Something else (for example, a transfer to a personal account or a personal expense paid by the company) - this is where your Director’s Loan Account (DLA) becomes overdrawn and negative implications can often arise.
If you take money out that isn’t a salary or dividend and there aren’t enough profits to support it, you’re effectively borrowing money from your company, creating a loan owed by you.
If that loan isn’t repaid within 9 months of your company’s year-end, the company must pay Section 455 tax, currently 33.75% of the loan balance.
That tax is repayable once the loan is cleared, but it can take time (and admin) to advise, calculate DLA interest if required and process the s.455 payment and refund. Because of this, we charge an additional £40+VAT per month if your DLA falls foul of this rule – so it’s definitely better to avoid and we’d much rather you didn’t!
Also, if your DLA balance ever exceeds £10,000, you will either have to pay interest back to your company or HMRC will treat it as a benefit in kind, meaning extra personal tax for you and National Insurance for the company.
Q: Can I charge my company interest on money I’ve lent it?
A: Yes, you can - and it can sometimes be quite tax-efficient.
The company can deduct the interest from its profits (reducing Corporation Tax), and you’ll be taxed personally at savings rates, which are currently lower than those on dividends or salary.
However:
The loan must be genuinely required – for example, the company needs funds to cover trading costs or manage cashflow. It wouldn’t be reasonable to pay £10,000 into a cash-rich company that’s comfortably paying its creditors, then demand interest.
A CT61 form must be filed for the interest payments, and there’s usually an additional accountancy fee for doing this. In practice, this only makes sense if the amounts involved are significant (e.g. £50,000 or more)
Q: What are your top tips for keeping my DLA neat and tidy?
Record everything properly - each time you pay money in or take it out, write a detailed description in your bookkeeping software explaining what the transaction relates to.
Repay loans quickly - if you owe the company money, aim to repay it as soon as possible (9 months after year-end is the absolute latest).
Avoid frequent personal spending - occasional mistakes are fine, but don’t make it a habit.
Check before you transfer - if you’re unsure, ask before moving funds. It’s much easier to prevent a problem than to fix one after your period-end.
In summary
If you put money in, you can usually take it out tax-free.
If you owe the company money, repay it quickly to avoid a 33.75% temporary tax charge.
And if you lend the company money, charging interest can be worthwhile – but only when it genuinely needs the cash and the amounts are significant.
Keeping your DLA tidy keeps your tax bill lower, your bookkeeping cleaner, and everyone (including us) much happier.