Director's loan account: What it is and how to use it

Published Friday 10 July 2026

Table of contents

• What is a director's loan account?
• Who can have a director's loan account?
• How a director's loan account works
• Tax rules on director's loans
• When to repay a director's loan
• What records do I need to keep?
• How do I record a director's loan in my accounts?
• Can a director lend money to the company?
• Manage director's loan accounts with Xero
• FAQs on director's loan accounts

Key takeaways

• A director's loan account (DLA) records non-salary, non-dividend, non-expense transactions between you and your company, helping you track what you owe the business or what it owes you. Keeping your DLA balance accurate matters for compliance and gives you clarity on your financial position at any time.
• The difference between a credit balance and an overdrawn director's loan account affects your tax exposure, so timing of repayments is critical to avoid unexpected charges. Understanding when and how to repay can save you from Section 455 corporation tax and benefit in kind reporting.
• Key tax rules include Section 455 charges on overdrawn balances, benefit in kind tax when borrowing exceeds £10,000, and income tax on written-off balances. Understanding these rules helps you plan how and when you move cash so you pay the right amount of tax.
• Simple, regular DLA accounting processes let you spot issues early and act with confidence, ensuring your records stay clean and your company's finances remain transparent. Setting clear internal processes for recording and reviewing DLA entries supports better decision-making and smoother year-end compliance.

What is a director's loan account?

A director's loan account (DLA) is a running record of money you take from or lend to your limited company that isn’t salary, dividends, or expense repayments. It sits on your company's balance sheet and shows whether you owe the company money (an overdrawn DLA) or the company owes you (a DLA in credit).

Think of it as a separate financial relationship between you as an individual and your business as a legal entity. Any time you withdraw cash for personal use, pay a personal bill from the company account, or inject your own funds into the business, that transaction should be recorded in the DLA. This keeps your personal and business finances clearly separated and ensures your accounts reflect the true position.

The DLA is a standard feature of UK limited company accounting and is essential for staying compliant with Companies House and HMRC. It's not a formal loan product like a bank overdraft, but it does carry tax and legal obligations if not managed properly. For detailed guidance on director's loan account rules, see the GOV.UK guidance on directors' loans.

Who can have a director's loan account?

Any director of a UK limited company can have a DLA. If your company has more than one director, each has their own separate DLA to record their individual transactions with the company.

Shareholder-directors are the most common users of a DLA, but the rules apply to any director regardless of whether they hold shares. HMRC also extends these rules to certain connected persons, such as associates of a director, so the same tax obligations can apply even if the individual is not formally listed as a director.

You don't need to set up a DLA deliberately. If you take any money from the company that isn't salary, dividends, or a reimbursed expense, a DLA exists by default and the tax rules apply from that point.

How a director's loan account works

Your DLA balance moves up and down based on the transactions you make. When you take money out of the company, the DLA becomes overdrawn (you owe the company). When you put your own money into the business or repay what you've borrowed, the DLA moves into credit (the company owes you).

Typical entries that increase what you owe the company include cash withdrawals for personal spending, personal purchases made on the company card, and personal bills paid from the business bank account.

Typical entries that reduce what you owe (or put the DLA in credit) include personal funds you transfer into the business, loan repayments you make back to the company, and business expenses you pay personally and haven't yet claimed back.

Here's a simple example to show how a director's loan works in practice.

Imagine you use the company debit card to buy a new laptop for your home office. That's a personal cost, so your DLA goes overdrawn.

A few weeks later, you transfer some personal savings into the business to cover a supplier invoice. That injection reduces your overdrawn balance or moves the DLA into credit. At year end, you review the DLA and see it's still overdrawn, so you make a repayment before the deadline to avoid tax charges.

The DLA appears on your balance sheet as either a debtor (if overdrawn) or a creditor (if in credit). This distinction matters for your financial statements and for understanding your company's cash position.

Regularly reviewing your DLA balance helps you plan repayments and stay within HMRC rules.

Tax rules on director's loans

Director's loan account tax in the UK is governed by several rules that apply at different thresholds and timings.

The main compliance points to watch are the timing of overdrawn balances, benefit in kind reporting, and the tax treatment of written-off loans. HMRC applies these rules to ensure directors don't use the DLA as a way to extract profit without paying the appropriate tax.

Tax rates and thresholds change over time, so always check the latest HMRC guidance or speak to your accountant before making decisions. The rules below reflect the current framework, but you should verify the specifics for your accounting period.

Overdrawn balances and Section 455

If the loan remains outstanding nine months and one day after the company's year-end, Section 455 tax may be levied at 33.75% of the outstanding balance. This charge is payable by the company, not the director personally.

You can reclaim this tax once you repay the loan in full. However, HMRC's repayment process can take time, so your company will be without that cash for a while. Anti-avoidance rules also apply: if you repay the loan and then borrow again within 30 days (a practice known as bed and breakfasting), HMRC may treat the transactions as a single loan and still apply the charge. More detail on corporation tax on directors’ loans is available on the GOV.UK page.

Loans over £10,000 and benefit in kind

If a director's loan exceeds a certain threshold, it can become a taxable benefit in kind.

Specifically, an interest-free loan is chargeable to tax if it exceeds £10,000 at any time during the tax year. This means you'll pay income tax on the value of the interest-free benefit, and the company may owe Class 1A National Insurance on that benefit.

The chargeable amount is 3.75% as of the 2026/27 tax year, which is applied to the average outstanding loan amount during the fiscal year.

However, not all advances to employees are treated as loans for tax purposes, especially small amounts for expenses. In practice, HMRC disregards advances not exceeding £1,000, provided the money is spent within six months and the employee accounts for the expenses regularly.

Written-off or released loans

When a director's loan is written off by the company, this action can trigger an income tax charge on the participator, especially if the company has already paid a s.455 corporation tax charge on it. For you personally, it's taxed like a dividend, and the company may also face an employment-related National Insurance charge. This can result in a significant tax bill, so always take professional advice before deciding to write off a DLA balance.

It’s possible for the company to get a refund on the Section 455 tax it has paid; this tax can be reclaimed under s.458 after the loan is written off.

Reclaiming Section 455

Once you've fully repaid an overdrawn loan, your company can reclaim the Section 455 tax it paid. The reclaim is processed through your corporation tax return, typically nine months and one day after the end of the accounting period in which you made the repayment. Keep accurate records of the repayment date and amount, as HMRC will require evidence. Reclaim timings can vary, so factor this into your cash flow planning.

When to repay a director's loan

The post-year-end repayment deadline is the critical date to avoid a company-level director's loan account tax charge. If your DLA is overdrawn at your company's year end, you have nine months and one day from that date to repay the loan in full and avoid the Section 455 charge. For example, if your year end is 31 March, you must repay by 1 January the following year.

Quick repay-and-reborrow strategies can be challenged by HMRC. If you repay the loan just before the deadline and then borrow again within 30 days, HMRC may treat the two transactions as a single loan and still apply the charge. This anti-avoidance rule is designed to stop short-term repayments being used to bypass the rules, so plan your repayments carefully and leave a clear gap before taking any new funds.

Larger director borrowing may also need interest and benefits reporting. If your overdrawn balance exceeds £10,000 at any point in the tax year and you're not paying interest at HMRC's official rate, you'll need to report a benefit in kind on your personal tax return and the company may owe Class 1A National Insurance. To avoid this, consider charging yourself interest at the official rate and recording the interest payments in your accounting software.

Timing matters for cash flow and tax planning. If you know you'll need to repay the DLA, plan ahead so you have the personal funds available before the deadline. You might also consider taking a dividend or salary to generate the cash for repayment, but be aware of the tax implications of each option. Your accountant can help you model the most tax-efficient approach.

What records do I need to keep?

HMRC requires you to keep accurate records of all transactions through your director's loan account. Poor records are one of the most common reasons directors face unexpected tax charges, so keeping a clear, up-to-date log protects you if HMRC ever queries your accounts.

For each DLA transaction, you should record the following key details:

• the date of the transaction
• the amount taken out or paid in
• the purpose of the transaction, for example, personal withdrawal, business expense paid personally, or loan repayment
• the running balance so you can see at any point whether the DLA is overdrawn or in credit

At the end of your company's financial year, you should also note several additional items:

• the closing DLA balance at year end
• the repayment deadline if the balance is overdrawn (nine months and one day after your year end)
• any interest charged or paid during the year, if applicable

Keeping digital records makes this straightforward and keeps you compliant with Making Tax Digital (MTD). Using accounting software to code and store every DLA transaction means your records are always accessible and easy to review at year end.

How do I record a director's loan in my accounts?

Recording DLA accounting entries is typically straightforward once you've set up the right accounts and established a consistent process. The key is to keep your DLA transactions separate from salary, dividends, and expense claims, and to review your balances regularly so you can spot errors or overdrawn positions early.

1. Set up your accounts

Create separate liability accounts for amounts owed by the director and amounts owed to the director.

Label them clearly, such as Director's Loan – Overdrawn and Director's Loan – In Credit, and add descriptions that explain what each account is for. This separation makes it easier to see at a glance whether you owe the company or the company owes you, and it aligns with UK reporting standards.

2. Record common transactions

Here are the typical DLA entries you'll need to record in your accounting software, along with tips for keeping them consistent:

• Personal cash injected: When you transfer personal funds into the business bank account, record the bank transaction and code it to the Director's Loan – In Credit account. Add a note with the date and reason for the injection.
• Business costs paid personally: If you pay a supplier invoice or business expense from your personal account, create a bill and code it to the Director's Loan – In Credit account. This records the fact that the company now owes you that amount.
• Personal withdrawals: When you withdraw cash for personal use, code the bank transaction to the Director's Loan – Overdrawn account. Be clear in the description that this is a personal withdrawal, not a salary or dividend payment.
• Personal bills paid by the company: If the company pays a personal bill (for example, your home broadband or a personal credit card), code the payment to the Director's Loan – Overdrawn account. This increases the amount you owe the company.
• Repayments by the director: When you repay an overdrawn DLA, transfer money from your personal account to the business and code the receipt to the Director's Loan – Overdrawn account. This reduces the balance you owe.
• Repayments by the company: If the company repays money it owes you (for example, reimbursing you for business expenses you paid personally), code the payment to the Director's Loan – In Credit account. This reduces the company's liability to you.

Keep your coding consistent and add clear notes to every transaction. This makes it easier to reconcile the DLA at year end and to answer any HMRC queries.

3. Check your reports

Review your balance sheet and detailed account transactions regularly to confirm where the DLA sits and to correct any miscoding early. Most accounting softwares let you run a balance sheet report and drill down into the DLA accounts to see every transaction. Set a monthly reminder to review the DLA balance, and flag any unexpected movements for investigation. This simple habit can save you from year-end surprises and help you plan repayments or injections in good time.

Can a director lend money to the company?

Yes, a director's loan to the company is perfectly allowed and often happens when a director injects personal funds to cover startup costs, bridge a cash flow gap, or finance growth. When you lend money to the company, the DLA goes into credit, and the company owes you that amount. This is recorded as a creditor on the balance sheet.

Repayments to the director are usually straightforward. The company can repay you at any time, and there's no tax charge or benefit in kind reporting required. You simply transfer the money from the business bank account to your personal account and code the transaction to the Director's Loan – In Credit account in Xero. This reduces the company's liability to you.

Paying interest on a director's loan can create company deductions and reporting obligations. If the company pays you interest on the loan, HMRC treats that interest as taxable income. The company must deduct income tax at the basic rate (currently 20%) before paying you, hand that tax to HMRC, and file a quarterly CT61 return to report it. You'll receive the net amount and declare the gross interest on your personal tax return.

If you're considering lending to your company, document the arrangement clearly. Set out the loan amount, interest rate (if any), repayment terms, and any security or collateral. This protects both you and the company and makes it easier to manage the loan over time.

Manage director's loan accounts with Xero

Keeping your director's loan account under control is easier when you have clean records and can review your balance in one place. Xero helps you track every DLA transaction, see whether you're in credit or overdrawn, and plan repayments or injections before deadlines. With clear coding, regular reporting, and simple reconciliation, you can stay compliant and make confident decisions about moving money between you and your company.

Get one month free

FAQs on director's loan accounts

This section answers common questions about managing your director's loan account, including how it appears in your accounts, tax-free thresholds, and what happens if you write off a balance.

Is a director's loan account a creditor or a debtor?

If your director's loan account is overdrawn (you owe the company), it's shown as a debtor. If it's in credit (the company owes you), it's shown as a creditor. This helps you see at a glance whether you need to repay funds or the company needs to repay you.

How much director's loan can I take tax free?

There's no specific tax-free amount for a director's loan, but you can avoid tax charges by managing the timing and size of your borrowing. If you repay an overdrawn balance within nine months and one day of your company's year end, you won't trigger the Section 455 charge. If you keep your borrowing below £10,000 or pay interest at HMRC's official rate, you won't have a benefit in kind to report.

Can I take money out of my director's loan account?

Yes, you can withdraw money from the company via the DLA at any time, but doing so will make the DLA overdrawn (or increase the overdrawn balance). You'll need to track the withdrawal and ensure you repay it before the post-year-end deadline to avoid tax charges. If you're taking regular withdrawals, consider whether salary or dividends might be a more tax-efficient way to extract profit from the business.

What happens if a director's loan is written off?

If the company writes off your director's loan or releases you from repaying it, HMRC will treat the written-off amount as income. You'll pay income tax on it as if it were a dividend, and the company may also owe employment-related National Insurance. This can create a significant tax bill for both you and the company, so always take professional advice before writing off a DLA balance.

What is the £10,000 benefit in kind threshold?

If you borrow more than £10,000 from the company at any point in the tax year and you're paying no interest (or interest below HMRC's official rate), you'll have a benefit in kind to report. This means you'll pay income tax on the value of the interest-free benefit, and the company may owe Class 1A National Insurance. If your loan stays below £10,000, or if you pay interest at the official rate, no benefit in kind reporting is required.