A director's loan account (often shortened to DLA) is the ledger that tracks money moving between a director and their limited company that is not salary, a proper dividend, or a reimbursed business expense. If the company pays for something personal, or you take cash out without calling it pay or a dividend, it usually lands here.
This guide is general information for UK private limited companies. It is not regulated tax or legal advice for your situation. Rates, thresholds and deadlines change. Anything that needs a professional decision should be signed off by a qualified accountant.
YearReady™ flags director's loan issues early in your year-end pack, so you can clear them with your accountant before they become a last-minute tax problem. Alfred prepares the finding. A qualified professional signs off anything regulated.
How a director's loan account works
Think of the DLA as a two-way IOU between you and the company.
- Overdrawn (you owe the company): the company has lent you money, paid personal bills, or you have taken drawings that were not salary or dividends.
- In credit (the company owes you): you have put personal money into the company, or the company owes you unpaid expenses or undrawn amounts that sit as a loan from you.
Every limited company with a director who mixes personal and company money ends up with some version of this account, even if nobody named it that way in the day-to-day books.
What usually goes on the DLA
Personal spend on a company card or account (shopping, holidays, personal subscriptions).
Cash taken out that was not processed as salary or a dividend.
Personal bills paid by the company (home utilities, personal tax, private car costs that are not business).
Money you put in to cover a shortfall, which may credit the DLA until repaid or reclassified.
Mixed or unclear payments parked in suspense and later moved to the DLA when nobody can prove a business purpose.
What should not be dumped on the DLA by default
- Salary and PAYE: run through payroll.
- Dividends: only if the company has sufficient distributable reserves, with proper paperwork.
- Genuine business expenses: claim and evidence them; do not leave them as a vague loan.
- Transfers between company bank accounts: those are not director loans.
When it becomes a tax problem
An overdrawn director's loan is not automatically "illegal". The risk is leaving it uncleared for too long, or treating it casually when the tax rules treat it as a loan from the company to you.
The corporation tax charge on overdue loans
If a close company (most small private limited companies) has an overdrawn loan to a director that is still outstanding nine months and one day after the end of the accounting period, the company can face an extra corporation tax charge on that balance. Accountants often refer to this under the corporation tax rules for loans to participators.
The charge is paid by the company. If you later repay the loan, the company can usually reclaim that tax, but you have still tied up cash and admin in the meantime.
On the Ask Alfred™ homepage, an illustrative YearReady™ finding shows a £24,300 director's loan that could cost about £8,200 if left too late. Those figures are illustrative product examples, not a quote of the rate that applies to your balance. Your accountant will apply the rules and rates in force for your period.
Benefits in kind and interest
Depending on the size of the loan and whether interest is charged, there can also be personal tax consequences for the director (for example a benefit in kind if a cheap or interest-free loan is large enough). This is separate from the company's corporation tax charge. Do not assume "I will just repay it later" covers both sides. Ask your accountant to check both.
Illegal dividends dressed as drawings
Taking money out and calling it a dividend after the fact only works if the company had distributable profits at the time. If it did not, what looks like a dividend can be reclassified as a loan (or worse). Year-end is when that reclassification often surfaces.
How to read your DLA balance
- Export the director's loan account (or "drawings") for the full accounting period.
- Split lines into: personal spend, repayments, salary, dividends, expenses, and unclear.
- Agree the closing balance with your bookkeeper or accountant.
- Decide the clear-down plan before the nine-month corporation tax window becomes the problem.
If the account is a mess of mixed cards and transfers, fix the categorisation first. A wrong label creates the wrong tax conversation.
Ways to clear an overdrawn balance
There is no single right answer. The right move depends on cash in the business, reserves, your personal tax position, and timing. Common options your accountant may discuss:
- Repay the company from personal funds before the critical deadline.
- Declare a dividend (only if reserves allow) and use it to clear the loan on paper, with proper dividend paperwork.
- Process salary or a bonus through payroll, accepting PAYE and National Insurance, where that is the cleaner route.
- Offset genuine unpaid expenses you can evidence, so the company owes you rather than the other way around.
- Leave a balance and pay the company tax charge, then reclaim later when repaid. Sometimes chosen deliberately; often accidental and expensive in cash-flow terms.
Alfred can surface the balance and the timing risk. Choosing among these options is regulated judgement for a qualified professional.
A simple director's loan checklist
Know the closing DLA balance at your accounting period end.
List every personal item that hit company accounts in the period.
Separate salary, dividends and expenses from true loan movements.
Diary the date nine months after period end so repayment planning is not a surprise.
Agree a clear-down plan in writing with your accountant.
Keep evidence of repayments, dividend vouchers and expense claims.
How this ties to year-end
Director's loans are one of the most common year-end surprises for owner-managed companies. They sit next to bank reconciliation, aged debtors and asset lists on a proper prep pack. Use the UK year-end accounts checklist for the full list, then come back here when the DLA line needs its own conversation.
YearReady™ is built to rank issues like an overdrawn loan by what it may cost if left late, and to share the pack with your accountant in one tap.
What to read next
- UK year-end accounts checklist
- YearReady™
- Making Tax Digital for Income Tax 2026
- Ask Alfred™ homepage
- All guides
This page is general information for UK small limited companies. Rules, thresholds and deadlines can change, and your facts matter. Nothing here is regulated advice, and nothing regulated should be submitted without a human approval from a qualified professional. Illustrative figures from product examples are not a calculation for your loan.