Home / Guides / Director Loan Accounts Explained: Tax Implications for 2026/27
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 the director personally and the company. It can be in credit (company owes the director) or in debit (director owes the company). The tax implications differ significantly depending on which position you are in and how the balance moves throughout the year.
Last updated May 2026. Written by the LimitedCompanyTaxCalculator.co.uk editorial team and reviewed against current GOV.UK and HMRC guidance. Results are estimates for planning only and are not tax, accounting or financial advice.
The director loan account records every financial transaction between the director and the company that is not salary, dividends or expenses. If a director pays business costs from their personal account before the company has cash to cover them, those amounts go on the DLA as money the company owes the director — the DLA is in credit. If the director takes drawings from the company before salary or dividends are formally declared, those drawings sit on the DLA as money the director owes the company — the DLA is in debit.
A DLA in credit is generally straightforward: the company owes the director money and can repay it tax-free. This commonly occurs when directors have loaned personal funds to start the business or when the director is owed salary or expenses that have not yet been paid. Repayment of this debt to the director is not a taxable event.
A DLA in debit — also called an overdrawn DLA — means the director owes money to the company. This is the situation that attracts HMRC's attention and creates specific tax obligations for both the company and the director.
If a director's loan account is overdrawn at the end of the company's accounting year and is not repaid within nine months of that year-end, the company becomes liable for a Section 455 corporation tax charge. The S455 charge is 33.75% of the outstanding loan balance. This is a cash cost to the company, not a personal tax on the director.
The S455 charge is temporary — it is fully refundable to the company once the loan is repaid. However, the refund is not immediate. HMRC repays the S455 tax nine months after the end of the accounting period in which the loan was repaid. The company therefore has a period of negative cashflow while the charge is outstanding, which can be significant for larger balances.
For overdrawn DLAs above £10,000, there is also a personal benefit-in-kind charge on the director. If the company charges interest below HMRC's official rate (currently 2.25%), the difference between the interest paid and the official rate is treated as a benefit in kind. This benefit is reported on form P11D and is subject to income tax at the director's marginal rate and employer Class 1A NI at 13.8%.
The cleanest approach is to declare a dividend or bonus sufficient to clear the overdrawn balance before the nine-month deadline. Declaring a dividend credits the director's account, reducing or eliminating the DLA debit balance. The dividend must be lawful — the company must have sufficient distributable reserves — and is subject to dividend tax in the usual way.
Alternatively, the director can personally repay the loan to the company from personal funds. This is straightforward but requires the director to have available cash. It clears the DLA immediately without any tax charge on the repayment itself.
A third option is to waive the loan — the company formally writes off what the director owes. This is treated as income to the director and is subject to income tax and potentially NI at the time of waiver. It is generally less efficient than declaring a dividend, since a waived loan is taxed as employment income (at income tax rates plus NI) rather than as a dividend (at lower dividend rates).
HMRC has anti-avoidance rules to prevent directors from clearing an overdrawn DLA just before the nine-month deadline and then immediately re-drawing the same amount. This 'bed-and-breakfasting' arrangement does not effectively repay the loan for the purposes of the S455 charge 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. If a director repays £10,000 to clear the DLA and then takes a further £9,000 from the company within 30 days, HMRC treats the loan as still outstanding for the overlapping amount. The S455 charge is not avoided by this pattern.
Good DLA management avoids these situations entirely. The most practical approach is to ensure that any drawings from the company are formally voted as salary or dividends at the time they are made, rather than treated as loans. A clear distinction between salary, dividends and genuine loans — maintained in the company's board minutes and accounting records — keeps the DLA clean and prevents unexpected S455 charges.
The director loan account is often the most disorganised part of a small limited company's finances. Directors who treat the company account as a personal account — making irregular drawings, paying personal expenses through the company, mixing business and personal transactions — tend to end up with complex DLAs that are expensive to unravel 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 holds cash beyond current working capital needs, the appropriate response is a formal dividend declaration rather than ad hoc withdrawals.
If you inherit an overdrawn DLA or have one that has grown larger than intended, the practical steps are: quantify the balance accurately; take tax advice on whether to clear it by dividend, bonus or personal repayment; understand the S455 charge timeline; and put in place a system to prevent it recurring. The cost of ignoring an overdrawn DLA is typically greater than the cost of addressing it promptly.
A 33.75% corporation tax charge on overdrawn director loan account balances that are not repaid within nine months of the company's accounting year-end. The charge is refundable to the company once the loan is repaid, but the refund is delayed by nine months after the repayment year-end.
Yes, if the balance exceeds £10,000 and the company charges below the HMRC official interest rate (currently 2.25%). The shortfall in interest is treated as a benefit in kind, reported on P11D, and subject to income tax and employer Class 1A NI.
Yes. Declaring a dividend credits the DLA with the dividend amount, reducing or eliminating the debit balance. The dividend must be lawful — supported by sufficient distributable reserves — and is taxed as a dividend in the usual way.
An anti-avoidance measure that prevents directors from repaying a DLA to avoid S455 and then immediately re-drawing the same amount. If a repayment of £5,000 or more is followed by a new loan 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.