What is a director's loan account?

The Director’s Loan Account (DLA) is a vital concept in business finance, yet it remains one of the most confusing, especially for new business owners. We hear the question often "my company made a profit and declared a salary, but where is the cash?"​

It's a completely fair question. It can feel like you are your company sometimes, but the reality is that the company has its own legal status.​

In its simplest form, the Director's Loan Account (DLA) is a record that tracks the movement of money between two separate legal entities: you (as a director) and your company. Think of it as a flexible loan account between you and the business.​

This account becomes particularly important when there’s more than one director or shareholder, as it clearly defines who owes what i.e. whether the company owes money to you, or you owe money to the company.​

When a company needs money, it essentially has 3 main ways to get it - from a bank, a third party or you (the director/shareholder).​

The bank transfers the loan amount to the company’s operating account. The company owes money to the bank, shown as a Bank Loan on the Balance Sheet.​

A third party transfers money to the company’s operating account. The company owes money to that individual/entity, shown as a Loan on the Balance Sheet.​

You, as director of the company, deposit personal money into the company’s bank account (or pay for some company expenses personally). The company owes you that money. This is a liability on the Director's Loan Account, and also shows on the Balance Sheet.​

Ideally, your DLA should have a credit balance, meaning the company owes you money. This is the safest position to be in.​

You'll usually see the 'Director's Loan Account' as a key line item on a company's Balance Sheet.​

The movement in the Director's Loan Account is made up of two types of transactions - cash transactions and year-end accountant adjustments.​

These are straightforward as they involve direct movement in the company’s bank account.​

Increases to the DLA (company owes you): when you deposit personal money into the company (known as Funds Introduced or Cash Deposits), or when you pay for company expenses yourself (not with company funds or card).​

Decreases to the DLA (you owe the company): when you withdraw money from the company for personal use, or when the company pays for your personal expenses (known as Drawings).​

As accountants, we want to make sure you’re as tax efficient as possible, so at year-end we make adjustments to Director's Loan Accounts when preparing the company’s financial statements.​

Salary or dividends (decrease DLA)​

If the company declares a salary or dividend, this can offset any overdrawn balance. Salary is subject to PAYE and NI, while dividends are declared from post-tax profits and must be supported by sufficient retained earnings.​

Reimbursement of expenses (increase DLA)​

If you’ve covered company expenses personally, such as business mileage or use of your personal phone. Your accountant will record these as reimbursable amounts, increasing your DLA balance.​

If you take more money from the company than you put in, you will have an overdrawn DLA. This means you owe the balance to the company (essentially, the company has given you a loan).​

An overdrawn account is almost always a warning sign of financial pressure. If your accountant says your DLA is overdrawn, please take it seriously and make time to understand what’s happening.​

HMRC treats an overdrawn DLA as a director’s loan, with potential tax consequences if it’s not repaid promptly.​

If your DLA is overdrawn at your company’s year-end and not repaid within 9 months and 1 day, HMRC charges Section 455 Corporation Tax on the outstanding amount.​

The current rate (as of 2025) is 33.75%, matching the higher dividend tax rate.​

This tax is refundable once the loan is repaid but it can take time to recover.​

Additionally, if the loan exceeds £10,000 and no (or low) interest is charged, HMRC may treat this as a benefit in kind with the following impacts:​

An overdrawn DLA can also have legal consequences.​

If the company becomes insolvent, the liquidator may require you to repay the overdrawn balance from your personal funds.​

In serious cases, persistent overdrawn accounts can raise questions about a director’s fiduciary duties and responsible conduct.​

If you find yourself with an overdrawn DLA, it's vital to address it quickly to avoid compounding interest charges and serious consequences. You have two primary ways to clear or reduce the balance:​

Introduce Funds: The most straightforward way is for you to personally transfer money back into the company’s bank account. This acts as a cash repayment of the loan, immediately reducing the amount you owe.​

Offset with Income: ​

If you’re due salary, dividends, or reimbursements, you can choose to offset these against your DLA balance rather than taking the cash.​

Understanding your Director's Loan Account is essential for business management. Here are a few important things to remember.​

Keeping these in mind ensures good financial governance, reduces tax risks and strengthens the financial health of your business.​