The director's loan account, explained in depth

What the account actually records

Every limited company keeps a running tally of money that passes between the company and each director that isn't salary, a dividend, or a reimbursed expense. That tally is the director's loan account. If you put your own money into the company — to cover a supplier before the bank balance recovers, say — the company owes you, and the DLA is in credit. If you take money out that isn't already accounted for, you owe the company, and the account is overdrawn. It's not a separate bank account; it's a ledger line in the company's books.

When the company owes you (credit balance)

A credit DLA is simply a loan from you to your business. You can draw it back down whenever the company has the cash, tax-free, because it's your own money being returned. Many directors bankroll the early months this way and repay themselves as trading picks up. You can even charge the company interest on the balance, though that interest is taxable income for you and the company must operate cash-flow discipline around it. A healthy credit balance is a quiet strength — it's cheap, patient funding you control.

When you owe the company (overdrawn balance)

This is where care is needed. If you take more out than you've put in and it isn't salary or a declared dividend, the account goes overdrawn — you owe the company. HMRC treats an overdrawn DLA seriously because it looks like extracting profit without paying the tax on it. Two charges can follow: a corporation-tax charge under section 455 on the outstanding balance, and a benefit-in-kind if the loan is large and interest-free. Neither is a penalty for wrongdoing; they're the price of leaving the balance sitting there. Clear it in time and both disappear.

The section 455 charge and the nine-month rule

If an overdrawn DLA isn't repaid within nine months and one day of the company's year end, the company pays a section 455 charge of 33.75% on the outstanding amount (33.75% for loans made from April 2022; 32.5% before). It's a temporary tax — HMRC refunds it once the loan is cleared — but the money is tied up in the meantime and the refund is slow, arriving nine months after the year end in which repayment happened. The lesson is blunt: repay an overdrawn account before the deadline, or plan the cash to cover the charge.

Benefit-in-kind on a large overdrawn account

Separately, if your overdrawn balance tops £10,000 at any point in the tax year and the company charges you no interest (or less than HMRC's official rate), the difference is a taxable benefit in kind. The company reports it on a P11D and pays Class 1A National Insurance; you pay income tax on the benefit. Charging yourself the official rate of interest sidesteps this — the interest then becomes income for the company instead. It's a small administrative choice with a real tax consequence.

Keeping the account clean

The directors who never think about their DLA are the ones who keep it tidy: they take a modest regular salary, declare dividends properly against real retained profit, put personal spending through personal accounts, and reconcile the loan account at least quarterly. If the company is short of cash, the answer isn't a bigger overdrawn DLA — it's a proper facility. Credicorp lends to the company, not to you personally, and takes no personal guarantee, so working capital stays where it belongs. Check what's affordable with the affordability calculator.