Director’s Loan explained. It’s not free money

So… You Took Money From Your Limited Company?
It’s your business. You run the show. So dipping into company money for personal use feels normal, right?
Well, HMRC sees things differently.
If you’re a company director and you take money out of the business not as salary, dividend, or expense reimbursement, it’s called a Director’s Loan — and it comes with serious tax rules.
Let’s break it down in plain English.

What Is a Director’s Loan?
It’s simple:

If your limited company gives you money and it’s not:

• Your salary (run through payroll)
• A dividend (from profits)
• A repayment for business expenses you’ve paid personally

… then it’s a loan. Even if it’s just £100. Even if you plan to pay it back “soon.”

And it must go on your company’s books as a Director’s Loan Account (DLA).

What Is a Director’s Loan Account (DLA)?
Think of it as a bank account between you and your company.

• If you put money into the company, your DLA is in credit (the company owes you)
• If you take money out, your DLA goes overdrawn (you owe the company)

A little borrowing here and there? Normal.
Letting it build up into thousands? ⚠️ Red flag for HMRC.

Why It Matters (Hint: HMRC Can Fine You)
If your DLA is overdrawn at your company’s year-end (even by £1)… HMRC takes notice.

You could face:

1️⃣ S455 Tax

If the loan isn’t repaid within 9 months of year-end, your company must pay 32.5% tax on the balance.

Example:
You borrow £10,000 and don’t pay it back — your company owes £3,250 in tax.

Good news? If you repay the loan later, HMRC will refund the tax — but it can take years.

2️⃣ Benefit in Kind (BIK)

If you borrow over £10,000 and don’t pay interest on it, HMRC treats it as a perk — like a company car.

That means:

• You pay personal tax on the “benefit”
• Your company pays extra National Insurance
• You need to report it on a P11D form

Yes, it gets messy fast.

3️⃣ It Affects Your Company’s Accounts

If your DLA is large, your accountant must show it on your statutory accounts.

That means:

• Potential red flag for banks or lenders
• Shareholders (if any) can question it
• You might lose access to business support or grants

Can’t I Just Repay It Before the Deadline?

Yes — if you repay the loan within 9 months of your company year-end, you avoid the 32.5% S455 tax.

But HMRC watches out for “bed and breakfasting.”
That’s when you repay the loan briefly, then take it out again right after.

They’re wise to it. Repeated short repayments with immediate withdrawals can still trigger penalties.

Common Mistakes Directors Make
❌ Taking money without recording it properly
❌ Assuming they can “just write it off” later
❌ Borrowing over £10k and not charging interest
❌ Repaying with a dividend when there’s no profit
❌ Not telling their accountant until it’s too late

Smart Ways to Use a DLA (and Avoid Tax Trouble)

• Keep your DLA in credit where possible
• Repay overdrawn loans within 9 months of year-end
• Don’t take dividends unless there’s enough retained profit
• Speak to your accountant before taking large sums
• Track every withdrawal (even small ones)

Pro tip: Use a business card for company spending and avoid personal borrowing altogether.

Real Talk: It’s Not Your Money (Yet)
Yes, it’s your company. But legally, the company is a separate entity.
That means its money is not yours — until it’s paid to you properly.

Trying to treat your business bank account like a personal one can:

• Trigger tax charges
• Delay HMRC refunds
• Make your accounts look messy
• And lead to a surprise tax bill down the road

Want Help Fixing or Managing Your Director’s Loan?
We’ve helped tons of UK directors:

• Fix overdrawn DLA messes
• Avoid unnecessary S455 tax
• Plan smarter withdrawals
• Get their books HMRC-compliant again

Whether you need a one-off clean-up or prefer our partner’s All Inclusive done-for-you service — we’ve got your back.