A director's loan account (DLA) tracks money moving between you and your limited company that is not salary, dividends, or expense reimbursements. It is a perfectly legitimate arrangement — but there are tax consequences if the balance goes the wrong way.
When you owe the company (overdrawn DLA)
If you withdraw more money from the company than you have put in (or are owed in salary/dividends), you have an overdrawn DLA. This is essentially a loan from the company to you.
Tax consequences if not repaid within 9 months of the company's year-end:
- Section 455 tax: the company pays 33.75% of the outstanding loan to HMRC (refunded when you repay)
- Benefit in kind: if the loan exceeds £10,000 at any point in the year and is interest-free, you pay personal tax on the benefit (calculated at HMRC's official rate, currently 2.25%)
How to clear an overdrawn DLA
- Declare a dividend: credit the DLA (but you will owe dividend tax personally)
- Vote yourself a bonus: credit via salary (subject to income tax + NI)
- Repay from personal funds: cleanest method, no tax implications
- Write off the loan: treated as a distribution, taxed as a dividend plus Class 1 NI
When the company owes you (credit DLA)
If you lend money to your company (e.g. to fund startup costs or cash flow), the company owes you. This is fine — the company can repay you at any time with no tax consequences. You can also charge the company interest (at a commercial rate), which is deductible for Corporation Tax but counts as your personal income.
The "bed and breakfasting" trap
HMRC watches for directors who repay a loan just before the 9-month deadline and then re-borrow shortly after. The "30-day rule" means repayments followed by new loans of £5,000+ within 30 days are not treated as genuine repayments.
Best practice
- Keep the DLA balance as close to zero as possible
- Declare dividends regularly rather than withdrawing ad hoc
- Record every transaction with clear descriptions
- Review the balance monthly, not just at year-end
Related guides
For the optimal way to extract profits, see our director's salary vs dividends guide. To model your personal tax on dividends, use the dividend tax calculator.