How to set up and run a director's loan account properly

Step 1 — record every movement as it happens

Log every transaction that isn't salary, dividend or a reimbursed expense the moment it happens — money you put in, money you take out. Use your bookkeeping software's director's loan account ledger rather than trusting memory at year end. The single biggest cause of DLA problems is undocumented movements surfacing months later.

Step 2 — keep personal and company money apart

Run personal spending through personal accounts and business spending through the company. Every time you blur them you create a DLA entry to untangle later. If you must use one for the other, record it immediately as a loan movement. Clean separation now saves hours of reconstruction at year end.

Step 3 — reconcile at least quarterly

Once a quarter, check the balance: is the account in credit (the company owes you) or overdrawn (you owe it), and by how much? Quarterly reconciliation means you always know your position and can act before a small overdrawn balance becomes a section 455 problem. See the director's loan account explained.

Step 4 — clear an overdrawn balance before the deadline

If you're overdrawn at year end, clear it within nine months and a day — by repaying cash, declaring a dividend against real profit, or voting a bonus — to avoid the section 455 charge. Plan this before year end, not after. See how to clear an overdrawn director's loan.

Step 5 — fund the business properly instead

If you're repeatedly overdrawn because the company's cash won't cover your drawings, the real fix isn't a bigger loan account — it's right-sizing drawings and funding genuine needs with a facility. Credicorp lends to the company with no personal guarantee. Size it with the working capital calculator.