Director’s Loan Accounts: Rules, Tax and Repayments for 2026/27

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Understanding your director’s loan

If you have taken money out of your limited company that isn’t salary, dividends or expenses, it’ll show up in your director’s loan account. That’s completely normal, but there are a few tax rules worth knowing about. When you’re the only director and shareholder, it is easy to think of the company bank account as your own. Legally, though, your company is a separate entity. Its money belongs to the business, even if you are the one who built it. Your director’s loan account is how that line gets drawn.

What is a director’s loan account?

A director’s loan account (DLA) records money that moves between you and your limited company, outside of salary, dividends and normal expense claims.

It typically includes:

• Money you’ve lent to the company
• Business costs you’ve paid for personally
• Money you’ve taken out for personal use
• Repayments you’ve made on anything you’ve borrowed

Kept up to date, it shows who owes what at a glance, so there are no nasty surprises when your accounts are done.

Credit balance or overdrawn: what’s the difference?

In credit means the company owes you. For example, say you lent the business £5,000 to get it off the ground. You can usually take that £5,000 back as a loan repayment with no Income Tax to pay on it.

Overdrawn means you owe the company. This happens when you’ve taken out more than you’ve put in, and those withdrawals haven’t been processed as salary, dividends or anything else.

An overdrawn account is more common than you’d think, and usually easy to sort with a bit of planning.

The S455 tax charge on unpaid director’s loans

An unpaid loan can trigger extra Corporation Tax for the business. This is the Section 455 charge. It applies when a loan is still outstanding nine months and one day after the end of the company’s accounting period. The rate depends on when the loan was made:

• Loans made on or after 6 April 2026: 35.75%
• Loans made between 6 April 2022 and 5 April 2026: 33.75%

So if your company lends you £10,000 in 2026/27 and none of it is repaid in time, the company is charged £3,575 in tax on that £10,000. This money isn’t gone forever. The company can claim the S455 tax back once the loan is repaid, released or written off, though there are timing rules on when that relief kicks in. Any late payment interest charged by HMRC on the S455 tax can’t be reclaimed. One thing to be aware of: paying the loan back just before the deadline and borrowing it straight back out won’t work. That used to be common practice and so HMRC has rules to catch exactly that.

Director’s loans over £10,000: the benefit in kind rule

There’s a second threshold to keep an eye on. If your loan balance goes over £10,000 at any point in the tax year, and the company charges you little or no interest, HMRC may treat it as a benefit in kind. That means extra reporting for the company and potentially more Income Tax for you personally. How much depends on the size of the loan, any interest you pay and whether any exemptions apply.

How to keep your director’s loan account under control

Most DLA problems come down to records, so start there:

• Log every personal withdrawal as it happens
• Keep loans separate from salary and dividends
• Check the balance regularly, not just at year end
• Know your nine-month repayment deadline

If your account is overdrawn, talk to your accountant before your company’s year end, while there’s still time to act. You might repay the balance directly, or clear it with a properly declared dividend if the company has enough distributable profits. Bear in mind a dividend is taxable for you personally, so it’s worth weighing up which route costs less overall. (Our guide on how to take money as a director of a limited company covers the options in more detail.)

Director’s loan account FAQs

Can I take a loan from my limited company?

Yes, as long as the company can afford it and the loan is recorded properly in your director’s loan account. Loans to a director over £10,000 generally need approval from the company’s shareholders. If you own the company outright, that approval comes from you, but it still needs to be recorded.

When do I have to repay a director’s loan?

To avoid the S455 charge, repay it within nine months and one day of the end of the accounting period in which you took the money. You can repay it later than that, but the company will owe S455 tax in the meantime.

Do I have to pay interest on a director’s loan?

Not necessarily. But if your loan goes over £10,000 at any point in the tax year and you pay little or no interest, HMRC may treat it as a benefit in kind. That can mean extra tax for you and extra reporting for the company.

What happens if my company writes off my director’s loan?

The company can reclaim any S455 tax it paid, but the amount written off is usually taxed on you personally as income. National Insurance may apply too. It’s rarely as simple as it sounds, so get advice before going down this route.

Is a director’s loan the same as a dividend?

No. A dividend is a share of the company’s profits paid to shareholders, and it’s taxed as dividend income. A director’s loan is money you owe back to the company. Mixing the two up in your records is one of the most common reasons director’s loan accounts end up overdrawn without anyone noticing.

Need help with your director’s loan account?

Director’s loan accounts are a normal part of running a limited company. They’re also one of those areas where a quick chat with your accountant can save you a fair bit of tax. At Blue Leaf Accounting, we help limited company directors make sense of their numbers, stay on top of their tax and make confident decisions about taking money out of the business.

Unsure about an outstanding balance, or want to know the most tax-efficient way to pay yourself? We’d love to help.

Get in touch with Blue Leaf Accounting to talk about your limited company accounts.

Written by Holly Mann. Reviewed by Rachel Stewart, founder of Blue Leaf Accounting.