Quick answer: a director's loan account records money you lend to, or borrow from, your own company. Money you have lent can be repaid to you tax free. Money you owe should be repaid within 9 months of the company's year end, or the company pays s455 tax at 35.75% until it is repaid.
If you run your own limited company, your director's loan account (DLA) is one of the most useful and most misunderstood parts of your finances. Used well, it lets you get your money back out tax free. Used badly, it can lead to extra corporation tax, a personal tax bill and awkward questions in your public accounts.
The DLA is simply a running record of money moving between you and your company that isn't salary, dividends or expense reimbursements. When you put money in, the company owes you (the account is in credit). When you take money out, you owe the company (the account is overdrawn). The company's money is not your money, even if you own every share.
Starting a company: keep share capital small, lend the rest
When you set up a limited company, you usually need to put money in to get it going. How you put that money in matters.
If you put it in as share capital (for example 10,000 £1 shares), it is locked in. Getting share capital back out later means a formal reduction of capital or a share buyback, both with legal steps and possible tax consequences.
If instead you issue just a few shares (often 1 to 100 shares at £1 each) and put the rest in as a loan to the company, your DLA is in credit. Once the company is making money, it can repay you that loan whenever cash allows. Repaying a loan is not income, so there is no income tax and no National Insurance on it.
Example: you start your company with 100 £1 shares and lend it £20,000 for equipment and set-up costs. Two years later the company is profitable and repays you the £20,000. You receive it tax free, on top of any salary and dividends.
Keep a clear record of the money you put in (bank transfers, and any business costs you paid personally). That record is what proves the company owes you.
Overdrawn accounts: close companies and s455 tax
If you take more out of the company than you've put in, your DLA becomes overdrawn and a special corporation tax charge can apply, known as s455 tax (section 455 of the Corporation Tax Act 2010).
What is a close company?
s455 only applies to close companies. Broadly, a close company is a UK company controlled by five or fewer participators (usually shareholders), or by any number of participators who are also directors. Almost every owner-managed company is a close company, so if you run your own limited company, assume this applies to you.
How s455 works
If a loan to a shareholder (or someone connected to them, such as a family member) is still outstanding 9 months and 1 day after the end of the company's accounting period, the company must pay s455 tax on the outstanding amount. This is the same date the company's corporation tax is due.
The rate is tied to the higher rate of dividend tax (the dividend upper rate), so it rises when that rate does. It has increased recently:
| Loans made | s455 rate |
|---|---|
| On or after 6 April 2026 | 35.75% |
| 6 April 2022 to 5 April 2026 | 33.75% |
| 6 April 2016 to 5 April 2022 | 32.5% |
So an overdrawn balance of £20,000 at the deadline would cost the company £7,150 in s455 tax at the current rate.
Record the date of every transaction. The s455 rate depends on when each loan was made, not when the tax is paid. An overdrawn balance built up over several years may include amounts charged at 32.5%, 33.75% and 35.75%. Repayments are also matched against specific loans, so without dated records it is hard to show that the right rate was charged or to reclaim the correct refund.
You get it back, but not straight away
s455 is a temporary tax, not a permanent cost. When the loan is repaid, written off or released, the company can reclaim it. The catch is timing: the refund is not due until 9 months and 1 day after the end of the accounting period in which the loan was repaid. That can mean the company's cash is tied up with HMRC for well over a year.
If the loan is repaid before the 9 months and 1 day deadline, no s455 is payable at all. The loan is still reported on the company tax return (form CT600A).
Interest: charge it, or face a benefit in kind
If your company lends you money interest free, or at a low rate, HMRC treats the interest you have saved as a benefit in kind, just like a company car.
This applies when the total you owe the company is more than £10,000 at any point in the tax year. The taxable benefit is the difference between:
- interest at HMRC's official rate (3.75% for 2026/27), and
- any interest you actually pay the company.
The official rate has changed over time:
| Tax year | Official rate |
|---|---|
| 2025/26 to 2026/27 | 3.75% |
| 2023/24 to 2024/25 | 2.25% |
| 2021/22 to 2022/23 | 2.00% |
| 2020/21 | 2.25% |
| 2017/18 to 2019/20 | 2.50% |
| 2015/16 to 2016/17 | 3.00% |
| 2014/15 | 3.25% |
| 2010/11 to 2013/14 | 4.00% |
HMRC reviews the rate every quarter and can change it during a tax year. Dates matter here too: the benefit is worked out on the balance outstanding over time, so a record of when money went out and came back lets it be calculated accurately.
The benefit is taxed at your income tax rate, and the company also pays Class 1A National Insurance (15%) on it. At present it is reported on a P11D after the end of the tax year.
What about the end of P11Ds? HMRC is moving benefits in kind onto the payroll, so tax is collected each month rather than via the P11D. Company cars, vans, fuel and medical benefits move first, from April 2027, with most other benefits following from April 2028. Beneficial loans are excluded from the mandatory rules for now. They can still be reported after the tax year, or the company can choose to payroll them voluntarily if it registers with HMRC before the tax year starts. HMRC has said it will set a timetable for bringing loans in later.
Example: you owe the company £30,000 all year and pay no interest. The benefit is £1,125 (3.75% of £30,000). As a higher-rate taxpayer you would pay £450 income tax, and the company would pay about £169 in Class 1A NIC.
The alternative is to pay the company interest at the official rate or higher. There is then no benefit in kind, but the interest is taxable income for the company. Which option costs less depends on your tax position, so it is worth reviewing each year.
It goes in your accounts, and they are public
Loans from the company to its directors must be disclosed in full in the notes to the accounts (section 413 of the Companies Act 2006). This applies to small companies and micro-entities too. Micro-entity accounts don't have full notes, but company law still requires advances to directors to be shown at the foot of the balance sheet, so they are still on the public record.
The note has to show:
- the amount of the loan
- the interest rate
- the main terms
- any amounts repaid, written off or waived during the year.
Because the accounts are filed at Companies House, anyone can see this information: customers, suppliers, lenders and competitors. A large or growing overdrawn DLA can raise questions about how the business is being run, and may affect your ability to borrow.
Other things worth knowing
Clearing an overdrawn DLA. You can repay it with personal funds, or the company can declare a dividend or pay a bonus and set it against the balance. A dividend is only allowed if the company has enough profits (distributable reserves). A bonus goes through payroll, with income tax and National Insurance.
"Bed and breakfasting" doesn't work. Repaying the loan just before the deadline and taking the money straight back out is caught by anti-avoidance rules. Broadly, if you repay £5,000 or more and borrow £5,000 or more again within 30 days, HMRC ignores the repayment for s455 purposes. Wider rules apply to balances of £15,000 or more where you intend to redraw.
Writing off the loan is expensive. If the company writes off what you owe, the amount is taxed on you as dividend income, and HMRC also expects Class 1 National Insurance through payroll. The company gets no corporation tax deduction for it, though it can reclaim any s455 paid.
Loans over £10,000 need shareholder approval. Under company law, loans to a director above this level need approval by the shareholders. In a one-person company that is a simple written resolution, but it should be on file.
If the company fails, the loan is called in. An insolvency practitioner will treat an overdrawn DLA as money owed to the company and can pursue you personally for it. Limited liability does not protect you here.
You can charge your company interest too. If your DLA is in credit, you can charge the company interest on the money you've lent it. The company can usually deduct it for corporation tax, but must withhold 20% income tax, pay it to HMRC and file form CT61. The interest is taxable income for you (the personal savings allowance may cover some of it).
Keep it tidy. Record every transaction through the DLA as it happens. Personal spending on the company card, or business costs you paid personally, both belong here. A monthly review avoids surprises at the year end.
Frequently asked questions
What is a director's loan account?
It is a record of money moving between you and your company that isn't salary, dividends or expense reimbursements. If you have put money in, the company owes you. If you have taken money out, you owe the company.
Can I take money out of my limited company tax free?
Yes, if you are repaying yourself money you have lent to the company. Repaying a director's loan is not income, so there is no income tax or National Insurance on it.
What is the s455 tax rate?
35.75% for loans made on or after 6 April 2026, and 33.75% for loans made between 6 April 2022 and 5 April 2026. It is refunded once the loan is repaid.
When is s455 tax due?
9 months and 1 day after the end of the company's accounting period, the same date as its corporation tax. If the loan is repaid before then, no s455 is payable.
Do I have to pay interest on a director's loan?
No, but if you owe the company more than £10,000 at any point in the tax year and pay less than HMRC's official rate (3.75% for 2026/27), the saving is a taxable benefit in kind.
Is a director's loan shown in micro-entity accounts?
Yes. Micro-entity accounts don't include full notes, but advances to directors must still be shown at the foot of the balance sheet, which is filed at Companies House.
In short
- Put in minimal share capital and lend the rest, so you can take it back tax free.
- Clear any overdrawn balance within 9 months of the year end to avoid s455 tax at 35.75%.
- Loans over £10,000 either carry interest or create a benefit in kind.
- Director loans appear in your public accounts.
Need help with your director's loan account? Meridian Accountants, Chartered Accountants based in Southampton, works with owner-managed companies across Southampton, Romsey, Winchester, the New Forest, Totton and surrounding areas. We can review your DLA, plan the most tax-efficient way to clear it and keep your records in order. Get in touch to book a call.
This article is general information based on the rules in force for the 2026/27 tax year. It is not advice on your specific circumstances. Please speak to an accountant before acting.