What a director's loan account actually is
A director's loan account (DLA) is simply the running record of money moving between you personally and your company that isn't salary, dividends, or a business expense reimbursement. If you take money out of the company that isn't formally declared as salary or dividend, you're borrowing from it — and the DLA tracks the balance. It can run the other way too, with you lending money into the company, but it's the "overdrawn" direction (you owing the company) that comes with the tax traps worth knowing about.
The £10,000 threshold
If your loan balance goes over £10,000 at any point during the tax year, HMRC treats it as a benefit in kind — unless you're paying interest on it at HMRC's official rate (currently 3.75%, reviewed quarterly). Go over that threshold without charging yourself interest at that rate, and the difference between what you should have paid and what you did pay becomes a taxable benefit, reportable on a P11D, with the company also paying Class 1A National Insurance at 15% on it.
The bigger issue: Section 455 tax
The more significant charge is under Section 455 of the Corporation Tax Act. If your loan account is still overdrawn nine months and one day after your company's year-end, the company has to pay a tax charge on the outstanding balance — currently 35.75% as of April 2026, deliberately set to match the higher-rate dividend tax rate, so there's no incentive to use a loan as a way of avoiding dividend tax.
The good news is this charge isn't necessarily permanent: if the loan is later repaid, the company can reclaim the Section 455 tax — but not immediately. It has to wait until the tax is due for repayment, which can mean the cash is tied up with HMRC for a considerable time even after you've cleared the loan.
Repay it, but watch the anti-avoidance rules
The obvious fix is to clear the loan before the nine-month-and-one-day deadline. But HMRC has specific rules to stop people gaming this by repaying just before the deadline and re-borrowing shortly after:
- If you repay and then re-borrow £5,000 or more within 30 days, the repayment is effectively ignored for Section 455 purposes — the loan is treated as if it was never repaid.
- For loans of £15,000 or more, there's a further rule that catches repayments where there was already an intention, at the time of repayment, to take out a new loan of a similar size — even if more than 30 days have passed.
In practice, this means "repay it, then borrow it straight back" isn't a workaround — HMRC has closed that loop deliberately.
Keeping it clean
The simplest way to avoid all of this is to keep the loan account under control in the first place — treat drawings from the company as either salary, dividend, or a genuine short-term loan you intend to (and actually do) clear well before the deadline, not as an ongoing overdraft. If you do need to borrow from the company for a genuine reason, plan the repayment (or a formal dividend to clear it, provided there are sufficient distributable reserves) with enough runway before your year-end that you're not scrambling in month nine.
If you're not sure where your director's loan account currently stands, that's exactly the kind of thing we check as part of your regular management accounts — better to catch it with months of room to fix it than find out at year-end with nine days left.