What is a director’s loan account — and what does it actually track?

A director’s loan account (DLA) is the running record of amounts a director owes a limited company, and amounts the company owes that director. It is not simply a bank transaction report. It should reconcile money transferred, personal expenditure paid by the business, expenses genuinely owed to the director, previous loans introduced to the business, repayments, salaries and properly declared dividends.

HMRC describes a director’s loan as money taken from the company that is not salary, dividend, an expense repayment or money previously lent to the company. A payment may look like a withdrawal, but its legal and accounting treatment depends on the supporting evidence. Proper classification matters because the company’s cash is not automatically the director’s personal money.

At the year end the net loan balance appears in the accounts: an overdrawn DLA is generally an asset owed back to the company; a credit DLA is generally a liability because the business owes the director. A clean opening balance, dated transaction ledger and reconciliation with the bank are the starting point.

Overdrawn versus credit: how the balance changes

A debit or overdrawn balance can arise when a director transfers company funds to a personal account, pays personal costs using the business card or withdraws more than is covered by salary, dividends and valid reimbursements. A credit balance can arise when a director pays company invoices personally or injects genuine loans into the business.

A dividend can clear a loan only if there are sufficient distributable profits and the dividend is lawfully declared; simply relabelling withdrawals is not enough. A bonus or salary may require PAYE/NIC treatment. Accountants should identify the basis for each credit before assuming the balance has been settled.

When does Section 455 tax apply?

Section 455 of the Corporation Tax Act 2010 can charge a close company that makes qualifying loans or advances to participators (broadly, shareholders and certain connected persons) when a relevant balance remains outstanding beyond the statutory time point. It is separate from ordinary Corporation Tax on trading profits. The typical deadline is nine months and one day after the end of the accounting period in which the loan arose. The detailed rules, exclusions and anti-avoidance provisions must be applied to the actual transaction.

A crucial distinction: not every loan to every director automatically incurs Section 455 tax. The participator/connected-person connection and applicable exemptions matter. Directors who are not shareholders should still review employment-benefit, corporate governance and loan terms rather than assuming no consequences.

HMRC confirms the Section 455 rate for qualifying loans made or benefits conferred on or after 6 April 2026 is 35.75%; the rate for qualifying loans from 6 April 2022 to 5 April 2026 was 33.75%. For older balances, the date and origin of each loan matter. The general GOV.UK director-loans summary may not yet reflect this later rate change, so refer to the updated HMRC Corporation Tax service guidance and HMRC Company Taxation Manual.

Worked Section 455 example: £24,000 outstanding

Suppose a shareholder-director borrows £24,000 on 1 June 2026 and the company’s Corporation Tax accounting period ends on 31 December 2026. If the qualifying loan remains outstanding nine months and one day after that period, the illustrative Section 455 charge at 35.75% is £8,580 (£24,000 × 0.3575). The company, not the director personally, is liable for this charge. The corresponding amount at 33.75% would be £8,100, but that earlier rate should not be applied blindly to a June 2026 loan.

The Section 455 tax is normally recoverable by the company after a genuine qualifying repayment, release or write-off and the applicable statutory claim date. Until recovery, it creates a significant cash-flow cost; there may also be interest exposure if the liability is paid late. This illustration assumes a qualifying close-company participator loan and no special relief or anti-avoidance circumstances.

Important timing: the company’s CT600/CT600A reporting and ordinary Corporation Tax payment cycle need to be planned together. An accounting period need not be identical to the statutory accounts year end; verify the actual Corporation Tax dates.

Repaying a director’s loan properly — and the 30-day trap

A straightforward repayment into the company bank account can reduce the debt, as can a properly documented and legally valid dividend or remuneration credit after accounting for any associated taxes. The safest approach is to reconcile the balance throughout the year and not rely on a last-minute cash transfer after the reporting deadline.

The legislation contains rules aimed at artificial “bed and breakfasting”: repaying an overdrawn balance only to take substantially the same funds back soon afterwards. Broadly, the £5,000/30-day rule and arrangements involving larger loans may prevent a repayment from producing the expected relief. Do not advise clients that a temporary bank transfer automatically fixes the position.

• Keep a signed transaction history and bank evidence for the actual repayment.
• Check whether a new advance within 30 days, or a prearranged later borrowing, defeats the intended effect.
• Review distributable reserves and dividend paperwork before crediting any dividend.
• Consider director/shareholder approval, company solvency and other legal requirements before any write-off.

What happens after the loan has been repaid?

Repayment does not necessarily produce an immediate HMRC refund. Where Section 455 tax has been paid, the company may claim relief once the relevant conditions are met. HMRC says relief is not normally available until nine months and one day after the end of the Corporation Tax accounting period in which repayment, release or write-off occurred. There are time limits on making the claim, and the relief cannot normally reverse any interest charge already incurred.

Claims may be made through an amended CT600A or the appropriate HMRC L2P process depending on the timing. Source: HMRC loans-to-participators reclaim guidance. A director should not record the company’s future tax refund as personal loan income.

The £10,000 beneficial loan test and interest-free borrowing

Section 455 is not the only potential tax issue. If a director or employee receives a cheap or interest-free employment-related loan and the aggregate loan balance exceeds the relevant £10,000 exemption threshold during the tax year, a taxable beneficial loan may arise. The value of the benefit is generally based on the applicable HMRC official rate of interest, subject to the detailed valuation rules and any interest actually paid.

HMRC lists the official beneficial-loan rate as 3.75% from 6 April 2026 in the guidance checked for this publication. These rates can be reviewed quarterly; always confirm the rate for the relevant dates. Depending on how the benefit is reported, P11D and Class 1A National Insurance obligations may apply. A loan that is repaid before the Section 455 deadline may still have created a benefit-in-kind exposure while outstanding.

For employment-related loan rates see HMRC official beneficial loan rates.

Director’s loan versus salary, dividends and expenses

The labels are not interchangeable. Salary is employment earnings subject to payroll treatment. Dividends are distributions of profits to shareholders and require lawful reserves and records. Reimbursed expenses are repayments for legitimate business costs paid personally. A loan creates a debt and is normally expected to be repaid.

For example, if an owner-manager withdraws £5,000 each month but the payroll pays only £1,000 and the company does not document sufficient distributable dividends, the unmatched withdrawals should not be ignored until year end. Each month’s movements can create a growing overdrawn balance even where the company is profitable on paper.

An accountant should compare cash availability, distributable profits, personal tax, payroll compliance and existing DLA balances before choosing a legal method for rewarding the director. The lowest immediate tax figure is not necessarily the best result if it creates an uncovered company loan.

What if the director lends money to the company?

A credit DLA usually means the company owes the director money. The company normally does not pay Corporation Tax simply because it has received a genuine director loan. Repayment of the principal is not itself salary or a dividend. However, interest paid to the director may be a deductible business expense for the company (subject to normal rules) and taxable income for the individual.

HMRC states that where a company pays interest to the director it generally must deduct basic-rate Income Tax and account for it using CT61. Keep a written loan agreement, rate, interest calculations and proof of payments. See HMRC: if you lend your company money.

Accounting entries, CT600A and the year-end evidence file

Good loan-account control should not begin with the accountant asking, “Can you remember this transaction?” nine months after the accounts year. It begins with accurate and current bookkeeping. A sensible file contains the opening loan balance, director-bank transfers, expense receipts, personally paid supplier invoices, dividends, approved payroll credits and genuine repayments.

• Reconcile the DLA ledger to every bank account and company card used by the director.
• Identify payments involving spouses or related persons; they may require separate analysis.
• Confirm shareholder status, relevant accounting period and each loan date for Section 455 rate selection.
• Compare the year-end balance with the CT600A disclosure and accounts notes as applicable.
• Keep contemporaneous dividend minutes, vouchers and evidence of distributable profits.
• Schedule both the ordinary Corporation Tax deadline and the Section 455 relief claim date, if relevant.

Britvex can connect monthly bookkeeping, year-end accounts and Corporation Tax support so that the entries used for advice match the actual company accounts.

What if the company is insolvent or a loan is written off?

An overdrawn director account can be a company asset recoverable by an office-holder in an insolvency. A formal write-off is not the same as a repayment and can have additional income tax and National Insurance consequences. Where there is a strained balance sheet, distressed trading or proposed liquidation, directors should obtain qualified advice before making transfers or declaring dividends.

Personal guarantees, connected-party transactions and duties to creditors can change the position. Do not remove a director debt from the balance sheet merely because the director cannot immediately pay. Evidence, legal form and the company’s real financial condition are central.

A practical monthly director’s loan control checklist

Rather than waiting for a year-end problem, work through a simple recurring control cycle:

1. Record every director-related transfer and personal expense as it occurs.
2. Categorise genuine business expenses with invoices or receipts.
3. Reconcile the opening balance, current transactions and closing balance.
4. Review whether lawful declared dividends or payroll amounts have been correctly credited.
5. Flag a debit balance, an approaching £10,000 beneficial-loan threshold or a post-year-end repayment deadline.
6. Document the decision and update the accounting ledger before the next month.

Directors who need to untangle historic withdrawals can request a defined-scope review. Britvex’s UK accounting team can assess the bookkeeping and the likely Section 455, payroll and personal-tax questions before any restructuring decision.