Running a limited company gives you flexibility—but that doesn’t mean you can just dip into the business account whenever you fancy. If you’re taking money out of your company and it’s not salary, dividends, or expense reimbursement, chances are it’s going through something called a Director’s Loan Account (DLA).
Handle it wrong, and you could land yourself with a surprise tax bill or even raise red flags with HMRC.
Here’s what you need to know to stay on the right side of the rules—and how we can help you do it smart.
What’s a Director’s Loan?
A Director’s Loan is when you take money out of the company that isn’t:
- A salary (processed through payroll)
- A dividend (properly declared)
- A reimbursement for legitimate business expenses
It can also work the other way: if you put personal money into the company to keep things ticking over, that’s also recorded in your DLA.
Think of it as an IOU between you and your business.
The Risks of Getting It Wrong
If your DLA goes overdrawn (i.e. you’ve taken more out than you’ve put in) and you don’t repay it within 9 months of your company’s year-end, here’s what happens:
1. Extra Corporation Tax
Your company could be hit with an additional 32.5% Corporation Tax charge on the overdrawn amount.
This isn’t a fine—it’s a holding charge. You’ll get it back once the loan is repaid, but that could be a long wait.
2. Benefit in Kind Tax
If you borrow over £10,000 and don’t pay interest, HMRC could treat it as a taxable benefit—meaning you pay personal tax on it, and your company may owe Class 1A NICs.
3. Director’s Loans Can’t Be Hidden
HMRC is watching. DLAs must be shown in your accounts and disclosed on your company’s CT600 tax return. And yes, they do check.
How to Stay on the Right Side
1. Track It Properly
Use accounting software (or a good accountant) to track every penny. We’ll keep your DLA up-to-date and flag any risks before they become issues.
2. Repay Loans Promptly
If you’ve borrowed from the company, aim to repay it within 9 months of year-end to dodge the tax charge.
3. Avoid the £10K Trap
Need to borrow more than £10,000? Make sure it’s properly documented, interest is charged (or you repay it quickly), and it’s all above board.
4. Talk to Us Before Taking Cash
Before you transfer money out of the company, drop us a message. We’ll help you structure it in the most tax-efficient and compliant way.
Why It Pays to Get Help
Director’s Loans can be useful—but they come with strings attached. The good news? With the right advice, they don’t have to be a headache.
At AD Accountancy, we help business owners:
- Track DLAs accurately
- Avoid unexpected tax
- Plan cash movements the smart way
We’re not here to stop you taking money out—we’re here to make sure it doesn’t cost you more than it should.
Need advice on your DLA?
Let’s get it sorted before HMRC comes knocking.
