Every limited company director has a director loan account, whether they know it or not. The DLA is the running ledger of amounts owed between you and the company. It can be in credit (company owes you) or in debit (you owe the company). The tax consequences depend entirely on which direction the balance sits and how quickly you resolve it.
Updated 2026/27 · LimitedCompanyTaxCalculator.co.uk · Editorial standards · Methodology
The DLA records every financial transaction between you and the company that is not salary, dividends or reimbursed expenses. Pay a business cost from your personal account before the company has cash? That goes on the DLA as money the company owes you, putting it in credit. Take drawings before salary or dividends are formally declared? Those sit on the DLA as money you owe the company, putting it in debit.
A DLA in credit is straightforward. The company owes you money and can repay it tax-free. This happens when you have put personal funds into the business, paid costs personally, or are owed salary or expenses not yet paid. Repayment is not a taxable event.
A DLA in debit, also called an overdrawn DLA, means you owe money to the company. That is what attracts HMRC's attention and creates specific tax obligations for both you and the company.
If your loan account is overdrawn at the end of the accounting year and not repaid within nine months, the company owes a Section 455 corporation tax charge. The S455 rate is 35.75% of the outstanding balance. This is a cash cost to the company, not a personal tax on you.
The S455 charge is refundable once you repay the loan. But the refund is not immediate. HMRC pays it back nine months after the end of the accounting period in which the loan was cleared. The company carries a cashflow hit in the meantime, which can be significant on larger balances.
For overdrawn DLAs above £10,000, there is also a personal benefit-in-kind charge. If the company charges you interest below HMRC's official rate (currently 2.25%), the shortfall is treated as a benefit in kind. It is reported on form P11D and subject to income tax at your marginal rate plus employer Class 1A NI at 15%.
The cleanest approach is to declare a dividend sufficient to clear the overdrawn balance before the nine-month deadline. That dividend credits your account and reduces or eliminates the debit. The dividend must be lawful, the company needs sufficient distributable reserves, and it is taxed as a dividend in the usual way.
You can also repay the loan personally from your own funds. That clears the DLA immediately with no tax charge on the repayment itself. But it requires you to have the cash available.
A third option is for the company to waive the loan and write off what you owe. That is treated as income to you and is subject to income tax and potentially NI. It is generally less efficient than a dividend, because a waived loan is taxed as employment income at income tax rates plus NI, not at the lower dividend rates.
HMRC has anti-avoidance rules to stop directors clearing an overdrawn DLA just before the nine-month deadline and then immediately re-drawing the same amount. This pattern does not count as repayment for S455 purposes if the same or a connected amount is re-advanced within 30 days.
The 30-day rule applies to repayments of £5,000 or more. Repay £10,000 and then take £9,000 back within 30 days, and HMRC treats the overlapping amount as still outstanding. The S455 charge is not avoided by this.
Good DLA management avoids these situations entirely. The most practical approach is to formally vote every drawing as salary or dividends at the time it is made rather than treating it as a loan. Clear records in board minutes and accounting files keep the DLA near zero and prevent unexpected S455 charges.
The DLA is often the most disorganised part of a small company's finances. Directors who treat the company account as a personal account, making irregular drawings, paying personal costs through the company, mixing transactions, tend to end up with complex DLAs that are expensive to untangle and that attract HMRC scrutiny during inspections.
Keeping the DLA clean is a byproduct of disciplined extraction. If every drawing is formally voted as salary or dividend before it leaves the company account, the DLA stays near zero. If the company has surplus cash, the right move is a formal dividend declaration, not ad hoc withdrawals.
If you have an overdrawn DLA or one that has grown larger than expected: quantify the balance, take advice on whether to clear it by dividend, bonus or personal repayment, understand the S455 timeline, and put something in place to stop it happening again. Ignoring it typically costs more than fixing it promptly.
A 35.75% corporation tax charge on overdrawn DLA balances not repaid within nine months of the accounting year-end. The company pays it. The charge is refundable once the loan is repaid, but the refund takes nine months after the repayment year-end.
Yes, if the balance exceeds £10,000 and the company charges you below HMRC's official interest rate (currently 2.25%). The shortfall is a benefit in kind, reported on P11D, and taxed at your marginal rate plus employer Class 1A NI.
Yes. A dividend credits your account and reduces or eliminates the debit. The dividend must be lawful, the company needs sufficient distributable reserves, and it is taxed as a dividend in the normal way.
An anti-avoidance rule. If you repay £5,000 or more to clear the DLA and then borrow from the company again within 30 days, HMRC treats the overlapping amount as still outstanding for S455 purposes.
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.