Director's loan account

Also called DLA, Directors loan

A running record of money moving between you and your company that is neither salary nor dividend. Overdraw it and it costs you.

What it means

A director's loan account tracks anything you take out of, or put into, the company that is not salary, dividend or expense reimbursement.

If you have put money in, the company owes you and the account is in credit. If you have taken money out, you owe the company and it is overdrawn.

Why it matters

An overdrawn account still owed nine months and one day after the company's year end triggers a corporation tax charge — section 455 — of 33.75% of the balance. It is refundable once you repay, but the cash goes out first and can take a long time to come back.

Over £10,000 outstanding also counts as a benefit in kind unless the company charges you HMRC's official rate of interest.

What it looks like in practice

The common route to trouble is drawing money monthly, intending to declare dividends at year end, and finding the profits were not there. What was meant to be a dividend becomes a loan.

Keep it visible. Ask your bookkeeper to report the balance monthly, not annually.

What to watch out for

Repaying just before the deadline and taking it out again shortly after — HMRC's "bed and breakfasting" rules exist to catch exactly that.

Insolvency. If the company fails with an overdrawn account, the liquidator will pursue you personally for it. This surprises directors who thought limited liability covered it.

Where to get proper advice

Your accountant, and early. HMRC's guidance on director's loans sets out the charges.