When the company owes you money 

If you use your own money to pay for company costs or you lend cash to help with business expenses, the DLA will show a credit balance on your balance sheet. 

You can repay yourself at any time, as long as the company has enough cash. There is no tax to pay on these repayments because you are simply taking back what you lent. 

Example: 
You pay £2,000 for business software from your personal account. The company later reimburses you £2,000. 

The DLA first shows a credit of £2,000 (company owes you). When you are reimbursed, it returns to zero. 

These payments should always be supported by clear records and receipts so that they are not mistaken for drawings or personal spending. 

When you owe the company money 

If you take money out of the company that is not classed as salary, dividends or expense repayment, it becomes a director’s loan. 

This creates a debit balance on your balance sheet.

Example:
If you use the company’s bank account to pay for a personal holiday, home renovation, or your own household bills, these are non-business expenses. HMRC will view those payments as a loan from the company to you.

Such withdrawals must either be repaid to the company or declared correctly for tax purposes.

Such loans must be repaid. If the balance remains unpaid nine months after the company’s financial year end, HMRC charges extra tax under Section 455 of the Corporation Tax Act 2010. 

The Section 455 tax charge 

If your DLA remains overdrawn nine months after year end, your company must pay a temporary tax charge of 33.75% on the outstanding amount (for loans made on or after 6 April 2022). 

This is known as the Section 455 tax. 

Example: 
If you owe your company £10,000 at the year end and it is not repaid within nine months, the company must pay £10,000 × 33.75% = £3,375 to HMRC.

Once you repay the loan, the company can reclaim that tax from HMRC. However, repayment can take some time, so it is best to avoid having an overdrawn DLA for long periods. 

Loans over £10,000 

If the amount you owe the company exceeds £10,000 at any time during the tax year, HMRC treats it as a benefit in kind unless you pay interest at the official rate. 

This means you will pay income tax on the value of the interest you would have paid if the loan had been at the official rate, and the company will pay Class 1A National Insurance on that benefit. 

Example: 
If your loan is £15,000 and HMRC’s official rate of interest is 2.25%, the notional interest is £15,000 × 2.25% = £337.50.
That amount is treated as a taxable benefit for you and must be reported to HMRC. 

Writing off or clearing a loan 

If the company decides to write off the loan instead of you repaying it, HMRC may treat it as income. This can lead to personal tax charges similar to dividends and, in some cases, National Insurance liabilities for both you and the company. 

To avoid unnecessary costs, always plan how you will clear any loan balance before the year end. 

Why keeping your DLA accurate matters 

Keeping a clear and accurate DLA protects both you and your company. 

It ensures that personal and company money stay separate and that your accounts correctly show any balances owed. 

It also helps avoid unnecessary tax charges, late repayments, and misunderstandings with HMRC. 

In summary 

A director’s loan account is a vital record of financial movements between you and your company. 

If the company owes you money, you can repay yourself without tax concerns. 

If you owe the company money, understand the rules, keep accurate records, and make sure you repay any balance on time to avoid extra tax. 

Regularly reviewing your DLA keeps your business finances healthy and helps you stay compliant with HMRC.