Glossary · 2026/27
What is a director’s loan account?
A director’s loan account records money a director takes from the company that is not salary, a dividend or an expense repayment, and money the director lends to it. If a director owes the company money at the end of an accounting period, there can be tax for the company and the director.
Also called: DLA, Director’s loan
According to GOV.UK, if the loan is not repaid within 9 months of the end of the company’s Corporation Tax accounting period, the company pays Corporation Tax at 33.75% of the outstanding amount (32.5% for loans made before 6 April 2022). The company can reclaim it once the loan is repaid, written off or released, but not the interest. If a shareholder director owes more than £10,000 at any time in the year, the loan is treated as a benefit in kind.
The balance appears on the balance sheet at the year end. Whether and how to repay it is a question for the director and their accountant.
How it is calculated
Balance = money the director has taken from the company (other than salary, dividends or repaid expenses) minus money the director has paid in or lent to it.
A balance in the company’s favour (a debit) means the director owes the company; this is an overdrawn account. A balance in the director’s favour (a credit) means the company owes the director.
Worked example
Example · illustrative figures
A company’s year ends on 31 March 2026. During the year its director takes £18,000 and pays back £3,000, so at the year end the director owes the company £15,000.
The loan is repaid if it is cleared within 9 months of the year end, by 31 December 2026. If the full £15,000 is still outstanding then, the company pays Corporation Tax at 33.75%: £5,062.50. The company can reclaim that tax after the loan is repaid, written off or released, though not any interest. Because the balance went above £10,000 during the year, it is also treated as a benefit in kind.
How to read it
The figure that matters most is the balance at the company’s year end, and whether it is repaid within the following 9 months. During the year, a balance that keeps growing usually means personal spending is running through the company, or that money is being drawn ahead of dividends that have not yet been declared.
A credit balance, where the company owes the director, carries no Corporation Tax charge for the company.
Common mistakes
- Personal costs paid with the company card and coded as business expenses, rather than to the director’s loan account.
- Money drawn “as dividends” without a board minute and voucher, which may be treated as a loan instead.
- Repaying just before the deadline and borrowing again straight after. GOV.UK sets out rules on loans of more than £5,000 repaid and re-borrowed within 30 days.
- Combining several directors into one account, which hides who owes what.
How it shows in Nella
Nella’s month-end checks include director’s loan balances on the balance sheet, so a balance building up is visible before the year end rather than at it. Whether and how to clear it is a decision for the director and their accountant. See month-end close readiness.
Sources
Related
Nella provides financial information and education, not accounting or tax advice.
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