Directors' Loan Accounts

Key facts

A DLA records all transactions between the director and the company.
An overdrawn balance means the company has lent to the director — potentially triggering Section 455 tax and a benefit in kind.
A credit balance means the director has lent to the company — no adverse tax consequences.
Outstanding loans at the accounting period end are reported on the CT600A.
“Bed & breakfasting” (repaying and immediately re-borrowing) is caught by anti-avoidance rules.

How Directors' Loan Accounts Are Taxed

A director’s loan account is a running record of money transactions between a director (or other participator) and the company. It is not a bank account — it’s a ledger within the company’s books.^[1]

Common transactions that affect the DLA:

Increases Balance (Company Owes Director)	Decreases Balance (Director Owes Company)
Director pays company expenses personally	Director withdraws cash from company
Director lends money to the company	Company pays personal expenses of director
Salary or dividends declared but not yet paid	Director uses company credit card for personal purchases

Overdrawn DLA: Tax Implications

When the DLA is overdrawn (the director owes the company money), there are two potential tax charges:^[1]

1. Section 455 Tax (on the company)

If the loan is still outstanding nine months and one day after the end of the accounting period, the company must pay Section 455 tax at 33.75% of the outstanding amount. This is effectively a temporary tax — it is repaid to the company when the director clears the loan.^[3] The charge is declared on supplementary page CT600A when the company files its CT600.

2. Benefit in Kind (on the director)

If the overdrawn balance exceeds £10,000 at any point during the tax year and the director is not paying interest at the official rate (currently 2.25%), a benefit in kind arises. The company reports this on form P11D and pays Class 1A NIC on the benefit.^[4]

Note: The £10,000 threshold is tested at any point during the year, not just at the year-end. A loan that peaks above £10,000 mid-year and is repaid before year-end still triggers the BIK charge for the period it was outstanding.^[4]

Repaying the Loan

There are several ways to clear an overdrawn DLA:^[1]

Cash repayment — the director transfers money back to the company
Declaring dividends — a dividend voted in the director’s favour is credited to the DLA (the director pays dividend tax)
Declaring a bonus — a salary bonus reduces the DLA (subject to PAYE and NIC)
Writing off the loan — the company forgives the debt (treated as a distribution; the director pays dividend tax and the company pays Class 1A NIC)

Once the loan is repaid (or written off), the company can reclaim the Section 455 tax. The refund is not automatic — it must be claimed and is repaid nine months and one day after the end of the accounting period in which the loan was repaid.^[3]

Bed & Breakfasting Anti-Avoidance

Some directors attempted to avoid Section 455 tax by repaying the loan just before the deadline and re-borrowing shortly after. HMRC introduced anti-avoidance rules to prevent this:^[2]

If a repayment of £5,000 or more is made, and within 30 days a new loan of £5,000 or more is taken out, the repayment is treated as not having been made
The company remains liable for Section 455 tax on the original amount
This applies to arrangements made on or after 20 March 2013

Tip: The simplest way to avoid DLA tax problems is to ensure you take money from the company through proper channels — salary, dividends, or expense reimbursements — rather than informal withdrawals. Keep the DLA monitored throughout the year, not just at year-end.

Reporting Requirements

Companies must report loans to participators in the following ways:^[1]

CT600A — supplementary page to the CT600, reporting loans to participators outstanding at the end of the accounting period
P11D — reporting the benefit in kind on the director’s employment tax return (if over £10,000 and no commercial interest charged)
Company accounts — the DLA balance must be disclosed in the financial statements

Frequently Asked Questions

What is a director’s loan account?

A director’s loan account (DLA) is a ledger within the company’s books that records all money transactions between a director and the company. It tracks money owed either way.

What happens if I owe my company money at the year end?

If the loan is still outstanding 9 months and 1 day after the accounting period end, the company must pay Section 455 tax at 33.75% of the outstanding amount. If the loan exceeds £10,000, a benefit in kind also arises.

How can I clear an overdrawn director’s loan account?

You can repay the cash, declare dividends or a bonus credited to the DLA, or the company can write off the loan. Writing off is treated as a distribution and the director pays tax at dividend rates.

What is “bed and breakfasting” a director’s loan?

It is the practice of repaying a loan before the year end and re-borrowing shortly after to avoid Section 455 tax. HMRC’s anti-avoidance rules treat repayments of £5,000 or more followed by new borrowing within 30 days as if the repayment had not been made.

Where are director’s loans reported to HMRC?

Outstanding loans to participators are reported on supplementary page CT600A alongside the Company Tax Return. If a benefit in kind arises, it must also be reported on form P11D.

Sources

Directors' loans — GOV.UK
Company Taxation Manual: loans to participators — HMRC
Tax on directors' loans — GOV.UK
Employment Income Manual: beneficial loans — HMRC

Directors’ Loan Accounts