Everything you need to know about borrowing from and lending to your own company — in plain English, with real examples.
As a director of your own limited company, you and your company are separate legal entities. That means if you take money out of the company beyond your salary and dividends, or put your own money in, it needs to be properly recorded — this is your Director's Loan Account (DLA).
Get it right and it's a useful financial tool. Get it wrong and you could face unexpected tax bills, benefit-in-kind charges, or complications at year-end.
The running record of money moving between you and your company
Your Director's Loan Account (DLA) is like a running ledger that tracks every financial transaction between you personally and your limited company — other than your salary and dividends. Think of it as a tab you run with your own business.
Every time money flows between you and the company outside of salary, dividends or expenses, it goes through the DLA. This includes putting your own money into the business, taking money out, paying personal bills through the company, or the company paying something on your behalf.
Your company is a separate legal entity from you personally. Money in the company is not your money — it belongs to the company. The DLA is the formal record of any borrowing or lending between you and it.
These transactions are recorded in your DLA:
Things that increase what you owe (overdrawn): taking cash from the company account, the company paying personal expenses on your behalf, purchasing personal items through the business.
Things that reduce what you owe (or create a credit): paying money into the company from your personal funds, expenses you've paid personally on behalf of the business, salary or dividends declared but not yet paid.
Your DLA appears on the Balance Sheet of your annual accounts. Where it appears depends on which way the balance sits:
If you owe the company (overdrawn DLA): it appears as a debtor under Current Assets — the company is owed money by you.
If the company owes you (credit DLA): it appears as a creditor under Current Liabilities — the company owes money to you.
What happens when you take more out than you've put in
An overdrawn DLA means you've taken more money from the company than you've put in or been formally paid out as salary/dividends. This is the situation that can lead to tax complications, so it's important to understand how it works.
Sarah's DLA is overdrawn by £7,040 at year-end. This triggers a Section 455 tax charge — see Section 3 below.
If your DLA is overdrawn at your company's year-end, you have 9 months and 1 day to repay it before S455 tax becomes due. For a 31 March year-end, that means repaying by 1 January the following year.
If your DLA is overdrawn by more than £10,000 at any point during the tax year, HMRC treats it as a benefit in kind. This means:
You'll pay income tax on a notional interest amount (calculated at HMRC's official rate — currently 3.75%). The company will also pay Class 1A National Insurance on the same amount.
This needs to be reported on a P11D form by the company, and you include it on your personal Self Assessment tax return.
What happens when an overdrawn DLA isn't repaid in time
Section 455 of the Corporation Tax Act 2010 (known as S455) is a tax charge that applies when a director's loan is still outstanding 9 months and 1 day after the company's year-end. It's designed to stop directors using their company as a personal piggy bank without tax consequence.
Your company's accounting year ends and the DLA is still showing a negative (overdrawn) balance.
Your Corporation Tax return and payment are due. If the loan hasn't been repaid, S455 tax is added to your Corporation Tax bill at 33.75% of the outstanding balance.
The good news: S455 tax is temporary. Once you repay the loan, HMRC refunds the S455 charge — but only 9 months after the end of the accounting year in which you repaid it.
HMRC has anti-avoidance rules that prevent directors repaying a loan just before year-end and then immediately drawing it back out. Repayments of £5,000+ must stay repaid for at least 30 days.
Sarah's overdrawn DLA of £7,040 is still outstanding 9 months after year-end. S455 tax of 33.75% = £2,376 is added to her company's Corporation Tax bill. She gets this back when she repays the loan — but must wait another 9 months for the refund.
No S455 tax charge. No permanent tax cost. Just make sure the repayment is genuine and stays repaid for at least 30 days.
S455 at 33.75% is added to your Corporation Tax bill. You'll get it back eventually, but it's a significant cash flow impact in the meantime.
Putting your own money into the company
A credit DLA is the opposite situation — you've put more money into the company than you've taken out. This happens most often in the early stages of a business when directors invest their own funds to get things started, or when you pay for business expenses personally.
If the company owes you money, there's no S455 tax charge — you're the lender, not the borrower. You can withdraw this money tax-free at any time (as it's a repayment of a loan, not income).
Common ways a credit DLA builds up include paying for business costs personally (e.g. fuel, subscriptions, equipment) that get reimbursed through the DLA, putting seed capital into the company when you started, or situations where salary is declared but not actually paid out — it sits as a credit in the DLA until you draw it.
If the company owes you money, you're entitled to charge interest on that loan — just as a bank would. The interest becomes a tax-deductible expense for the company, reducing its Corporation Tax bill.
However, any interest you receive is income for you personally, and you'll need to declare it on your Self Assessment and pay income tax on it above your Personal Savings Allowance (£500 for higher rate taxpayers, £1,000 for basic rate).
For most small directors with modest credit balances, the amount of interest involved is small enough that this rarely creates a tax issue — but it's worth being aware of.
How to manage your director's loan account sensibly
A well-managed DLA causes no headaches at year-end and keeps HMRC happy. Here's how to stay on top of it.
The single best thing you can do is maintain a dedicated business bank account and never use it for personal spending. Every time you use the company account personally, it creates a DLA entry that needs to be tracked and eventually repaid.
If you do need money from the company, take it as salary or dividends — not informal withdrawals. These are declared, taxed correctly, and don't create DLA complications.
The DLA should be kept up to date throughout the year — not reconstructed at year-end from memory. Good record-keeping means noting the purpose of every transaction, keeping receipts for any personal expenses paid through the business, and reconciling regularly.
If you use accounting software like Xero or QuickBooks, your accountant can set up a dedicated DLA account so every transaction is captured automatically.
If you're drawing money from the company regularly, work with your accountant to ensure the amounts are covered by declared salary and dividends. Unrecorded withdrawals accumulate quickly into a significant overdrawn DLA.
A good approach: review your DLA balance quarterly. If it's creeping overdrawn, either declare a dividend to clear it (if profits allow) or make a personal repayment to the company.
If your company has sufficient retained profits and you have an overdrawn DLA, you can declare a dividend and offset it against the DLA balance rather than physically moving cash. This is a common and perfectly legitimate way to clear an overdrawn balance — speak to us at HOMF and we can work out the best approach for you.
Quick answers to the questions we hear most often
We help directors stay on top of their DLA all year round — not just at year-end. Get in touch and we'll talk through your situation.