Director's Loan Account Explained: Rules, Tax and Deadlines

What a director's loan account actually is

A director's loan is money you take from your company that is not a salary, a dividend or an expense repayment, and is not money you have previously paid into or lent the company. The director's loan account, often shortened to DLA, is the ledger that keeps a running total of these transactions across the accounting year. It records what you have drawn and what you have contributed, and the net figure at your year end must be disclosed on the company's balance sheet within its annual accounts.

It is worth being clear that a limited company is a separate legal person from its directors and shareholders. The money in the company bank account is the company's money, not yours, even if you own every share. That is precisely why these transactions are tracked. Family members can also be caught: money taken by a director or, in some cases, close family members counts towards the account.

Keeping the account accurate is not optional bookkeeping housekeeping. HMRC expects a company to maintain records of every monetary transaction with its directors, and the balance drives the tax treatment. Small companies that treat the business account as a personal current account are the ones most likely to find an unexpected charge at the year end.

Overdrawn versus in-credit balances

There are two directions the account can move, and they matter for very different reasons. If you have taken out more than you have put in or are owed, the account is overdrawn and you owe the company money. If you have lent money to the company, or the company owes you unpaid salary or expenses, the account is in credit and the company owes you.

An in-credit account is generally straightforward. The company can repay you at any time without a tax charge on the repayment itself, because you are simply getting your own money back. Many owner-directors deliberately lend start-up funds to their company and sit in credit for the first year or two. The company can even pay you interest on that loan, though the company must then handle the tax on that interest correctly.

The overdrawn account is where the attention is needed. When a director who is also a shareholder owes the company money, two separate tax questions arise: a corporation tax charge on the company under section 455, and a possible personal benefit-in-kind charge on the director. The rest of this guide focuses on those two charges and how to stay clear of them.

The S455 corporation tax charge and its deadline

If a director who is also a shareholder (a participator, in HMRC's language) still owes the company money at the end of the accounting period, and that loan is not cleared within nine months and one day of the end of that accounting period, the company must pay a corporation tax charge under section 455 of the Corporation Tax Act 2010. The rate is 33.75% of the outstanding loan, or 32.5% if the loan was made before 6 April 2022, according to gov.uk.

The timing is the point most people miss. The charge attaches to the balance outstanding on the last day of the accounting period, but it only becomes payable if the loan is still there nine months and one day after that date. Repay the loan inside that window and no S455 charge arises. Miss it and the company hands 33.75% of the outstanding amount to HMRC, even though this is the company's tax rather than a permanent cost.

The good news is that S455 is refundable. Under the relief in section 458, once the loan is repaid, written off or released, the company can reclaim the corporation tax it paid. gov.uk states the relief is due nine months and one day after the end of the accounting period in which the repayment, write-off or release happened, and that a claim must be made within four years. You cannot reclaim any interest paid on the S455 corporation tax itself, so late payment still has a cost even after the refund.

The benefit-in-kind rules and the official rate of interest

The second charge is personal to the director. If the total balance you owe the company goes above GBP 10,000 at any point in the tax year, and the company either charges you no interest or charges you less than HMRC's official rate, the discount counts as a benefit in kind. HMRC guidance confirms that no benefit is chargeable if the total of all beneficial loans stays at or below GBP 10,000 throughout the tax year.

The benefit is worked out as the interest you would have paid at the official rate, less any interest you actually paid. The official rate of interest for beneficial loan arrangements is 3.75% from 6 April 2025 and remains 3.75% from 6 April 2026, as published by HMRC. So if your loan sits above GBP 10,000 interest-free, the taxable benefit is broadly 3.75% of the average balance for the days it was outstanding.

Where a benefit arises, the company reports it on form P11D, pays Class 1A National Insurance on it, and the director pays income tax on the benefit through Self Assessment. The simplest way to avoid the whole issue is to keep the balance at or below GBP 10,000, or to have the company charge you interest at or above the official rate so there is no discount to tax.

Companies Act 2006 approval for loans to directors

Tax is only half the picture. Company law also governs whether the company is allowed to make the loan in the first place. Section 197 of the Companies Act 2006 states that a company may not make a loan to a director of the company or of its holding company, or give a guarantee or provide security in connection with such a loan, unless the transaction has been approved by a resolution of the members of the company.

There is no monetary threshold in section 197 as drafted: the approval requirement is expressed in terms of the transaction rather than a minimum amount, and members must be given a memorandum setting out the nature of the transaction, the amount and purpose of the loan, and the extent of the company's liability. Where the director is a director of the holding company, approval from the members of the holding company is needed too. The Act does provide exceptions, including for companies that are wholly-owned subsidiaries.

For a typical one-person company, the director and the sole member are the same person, so passing the resolution is a formality, but it should still be documented in the company's records. In companies with outside shareholders or multiple directors, ignoring this step can make the loan voidable and expose the director, so it is worth treating the approval as a genuine governance point rather than a rubber stamp.

Managing the account and avoiding a surprise charge

The practical goal is to keep the account tidy and to clear any overdrawn balance before the nine-month deadline bites. That means recording every transaction, watching the running balance against the GBP 10,000 line, and planning repayments or dividends in good time rather than at the last minute.

Be careful with repaying and immediately re-drawing the same money. HMRC has anti-avoidance rules for what it calls bed and breakfasting. Under the 30-day rule, a repayment can be matched to a fresh loan made within 30 days and denied relief, and under the arrangements rule a repayment can be caught where the amount outstanding is at least GBP 15,000 before repayment and arrangements exist to redraw at least GBP 5,000 of new loans. In short, a genuine, enduring repayment clears the charge, but a paper round-trip does not.

If you are still setting up your company and want to keep your director's loan account and filings clean from day one, our formation and compliance support can help. See our company formation service for what is included, and if you would rather talk it through first you can get in touch with our team.

Conclusion

A director's loan account is nothing to fear, but it does demand attention. The rules reward directors who keep clean records, watch the GBP 10,000 threshold, secure the member approval that company law requires, and clear any overdrawn balance within nine months and one day of the accounting period end. Do those four things and the S455 charge, the benefit-in-kind and the Companies Act problem all fall away.

The costs of neglect are real: 33.75% corporation tax on an unrepaid balance, a personal tax charge where interest sits below the official rate of 3.75%, and a loan that may be voidable if it was never approved. None of it is complicated once you understand the moving parts, and a good bookkeeping routine or a compliance partner takes most of the effort away.

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