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What the loan account records
The directors' loan account (DLA) tracks money flowing between you and the company that is not salary, dividend or expense. Put money in and the company owes you; take money out and you owe the company. Kept clean, it is unremarkable.
The overdrawn-account charge
If your DLA is overdrawn (you owe the company) at year end and not repaid within nine months and a day, the company pays a temporary corporation-tax charge — the section 455 charge — on the outstanding amount. It is refunded when you repay the loan, but it ties up cash meanwhile.
The benefit-in-kind trap
A large, cheap or interest-free loan from the company can also create a benefit in kind, taxable on you and carrying Class 1A NI for the company. So an overdrawn DLA can trigger two charges at once.
Bed and breakfasting
Repaying just before year end and re-borrowing straight after — "bed and breakfasting" — to dodge the charge is caught by anti-avoidance rules. HMRC scrutinises DLAs closely, so genuine repayment, not window-dressing, is the only safe route.
Keeping it clean
Take money out properly as salary or lawful dividends, record everything, and clear an overdrawn balance promptly. If the company needs its cash back rather than lending it to you, external finance is the cleaner answer.
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Frequently asked questions
What is the tax charge on an overdrawn directors' loan?
If the account is overdrawn at year end and not repaid within nine months and a day, the company pays a temporary section 455 charge on the outstanding amount. It is refunded when you repay, but it locks up cash meanwhile.
Can a directors' loan create a benefit in kind?
Yes. A cheap or interest-free loan above a threshold can be a taxable benefit in kind, taxed on the director with Class 1A National Insurance for the company — so an overdrawn account can trigger two charges.
Can I repay a directors' loan before year end and re-borrow after?
This "bed and breakfasting" is caught by anti-avoidance rules and HMRC scrutinises it closely. Only genuine repayment avoids the charge; short-term window-dressing does not.
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