What happens if I owe my company money through a director's loan?

If you owe your company money (an overdrawn DLA) at the end of the company's accounting period and haven't repaid it within 9 months and 1 day of the year-end, the company must pay Section 455 tax at 33.75% of the outstanding loan amount. This is a temporary tax — it's refunded when the loan is repaid or written off. However, you may also have a personal benefit-in-kind tax charge if you didn't pay interest at the HMRC official rate (currently 2.25%).

How do I repay a director's loan?

You can repay a director's loan by: transferring personal money back into the company bank account, declaring dividends and offsetting them against the loan balance, reducing your salary and crediting the difference against the loan, or the company writing off the loan (but this triggers income tax and NI on the amount written off). The cleanest method is usually a combination of dividend offset and direct repayment. Always ensure repayments are genuine and documented.

Can I lend money to my own company?

Yes — directors often lend money to their company, especially at startup. The company records this as a credit balance on your DLA. You can withdraw this money at any time without tax implications (it's repayment of your loan, not income). You can also charge your company interest on the loan — but you'll pay income tax on the interest received, and the company must deduct 20% basic rate tax at source and pay it to HMRC.

Director's Loan Account Guide — Rules, Tax & Section 455 | PocketWise

Q: What is a director's loan account?

A director's loan account (DLA) records all money that flows between a director and their company that isn't salary, dividends, or expense reimbursements. If you take money from the company for personal use, it creates a debit balance (you owe the company). If you put personal money into the company, it creates a credit balance (the company owes you). HMRC closely watches DLAs because they can be used to extract money from a company without paying the correct tax.

If you run a limited company, understanding your director’s loan account is essential to avoid unexpected tax bills. Here’s how it works.

What Is a Director’s Loan Account?

Element	Detail
Definition	A record of all money between you and your company that isn’t salary, dividends, or expenses
Overdrawn DLA (you owe the company)	You’ve taken out more than you’ve put in
Credit DLA (company owes you)	You’ve put in more than you’ve taken out
Who needs one	Every director of a limited company (even sole director-shareholders)
Where it’s recorded	In the company’s accounts — usually managed by your accountant

Common Transactions on a DLA

Debits (Increasing What You Owe)

Transaction	Example
Personal spending on company card	Using the business card for a personal purchase
Cash withdrawals for personal use	Taking cash from the company account
Company pays personal bills	Mortgage, personal insurance, utilities
Excessive petty cash	Taking cash without receipts
Benefit-in-kind items	Company buys you a personal asset

Credits (Reducing What You Owe)

Transaction	Example
Personal money put into the company	Startup capital, cash injection
Salary credited to DLA	Instead of paying to your personal account
Dividends credited to DLA	Dividends offset against the loan balance
Personal expenses paid with own money	Claiming legitimate business expenses
Repaying the loan directly	Transferring personal funds to company account

Tax Implications of an Overdrawn DLA

Section 455 Tax (Corporation Tax Act 2010)

Feature	Detail
When it applies	DLA is overdrawn at your company’s year-end and not repaid within 9 months and 1 day
Tax rate	33.75% of the outstanding balance (aligned with higher-rate dividend tax)
Who pays it	The company (not you personally)
When it’s paid	With the corporation tax payment (9 months and 1 day after year-end)
Refundable?	Yes — refunded when the loan is repaid (but not until 9 months after the end of the accounting period in which it’s repaid)
Example	You owe the company £10,000 at year-end → company pays £3,375 S455 tax → you repay the £10,000 → company gets the £3,375 back (eventually)

Benefit-in-Kind (BIK) Tax

Feature	Detail
When it applies	DLA is overdrawn by more than £10,000 at any point during the tax year
Why	HMRC treats the loan as a taxable benefit (interest-free borrowing)
How it’s calculated	Outstanding balance × HMRC official interest rate (currently 2.25%)
Example	£20,000 overdrawn for the full year → BIK = £20,000 × 2.25% = £450
Your tax	Income tax on the BIK amount (at your marginal rate)
Company’s cost	Class 1A NI at 13.8% on the BIK amount
How to avoid it	Pay interest to the company at the official rate (currently 2.25%)
Reporting	Reported on form P11D

If the Loan Is Written Off

Feature	Detail
Tax treatment	Treated as employment income — subject to income tax and NI
NI cost	Both employee NI and employer NI apply
For a shareholder (not employee)	Treated as a distribution — taxed at dividend rates
S455 refund?	Yes — company gets S455 tax back when the loan is written off

The 9-Month Rule — Key Dates

Company year-end	S455 deadline (repay by)	S455 payment due	S455 refund available (if repaid)
31 March 2026	1 January 2027	1 January 2027	9 months after the period-end in which loan is repaid
31 December 2025	1 October 2026	1 October 2026	9 months after the period-end in which loan is repaid

Bed and Breakfasting Rules

Feature	Detail
What is it	Repaying a DLA before year-end and then re-borrowing shortly after to avoid S455
HMRC’s anti-avoidance rule	If you repay £5,000+ and re-borrow £5,000+ within 30 days, HMRC treats the loan as never having been repaid
Example	You owe £20,000. You repay £15,000 on 28 March. You borrow £15,000 on 10 April. HMRC treats the original £20,000 as still outstanding
Also applies to	Repayments matched against new loans of £15,000+ made within the same accounting period or within 30 days before/after
How to avoid	Don’t repay and re-borrow within 30 days. If you need to borrow again, wait at least 30 days

Managing Your DLA Properly

Best practice	Detail
Keep records	Document every transaction — personal vs business
Separate bank accounts	Use a personal account and business account separately
Vote dividends properly	Board minutes, dividend vouchers for each dividend
Repay before year-end	Aim to clear (or reduce) the DLA before your company year-end
Pay interest	If overdrawn by £10,000+, pay interest at the official rate to avoid BIK
Review monthly	Ask your accountant for a monthly DLA statement
Don’t use company money for personal spending	The simplest way to avoid DLA problems

How to Repay a Director’s Loan

Method	Tax implication
Transfer personal money to company	No tax — simply repaying the loan
Offset dividends against DLA	Dividend tax applies as normal, but no additional DLA tax
Offset salary against DLA	Income tax and NI apply as normal
Company writes off the loan	Taxed as employment income (income tax + NI)
Declare a bonus and offset	Income tax + NI — then offset against DLA

When the Company Owes You (Credit DLA)

Feature	Detail
Common situations	You lent money to the company at startup, paid business expenses personally
Withdrawing the money	No tax — it’s repayment of your loan
Charging interest	You can charge the company interest — it’s a deductible expense for the company
Tax on interest	You pay income tax on interest received; company deducts 20% basic rate at source (CT61)
Formal loan agreement	Recommended for larger amounts — sets out terms, interest rate, repayment schedule

Common Mistakes

Mistake	Consequence
Using the company account for personal spending without recording it	Creates an unintended DLA, potential S455 tax
Not repaying before the deadline	Company pays 33.75% S455 tax
Bed and breakfasting	HMRC ignores the repayment — S455 still due
Not paying interest on loans over £10,000	BIK tax plus employer NI
Writing off the loan without considering the tax	Income tax + NI on the full amount
Not keeping proper records	Makes it hard to track and defend if HMRC enquires