A Director’s Loan Account (DLA) tracks all money moving between you and your company that is not explicitly classified as a salary, dividend, or legitimate business expense repayment.
Because you and your limited company are separate legal entities, treating the company bank account as your own triggers strict HMRC tax rules.
The Two States of a DLA
Your DLA will always be in one of two positions at any given time.
| State | What it means | Tax Implications & Rules |
| In Credit (Company owes you) | You lent personal money to the company, or left declared dividends in the business. | None to withdraw. You can withdraw this money tax-free at any time. You can also charge the company interest, but the company must deduct 20% income tax (via form CT61) and you must declare it on your Self Assessment. |
| Overdrawn (You owe the company) | You took money out of the company without declaring it as salary or dividends. | Strictly regulated. Triggers potential Benefit in Kind (BiK) personal tax and a heavy 33.75% Corporation Tax charge (Section 455) if not managed correctly. |
Caution: The £10,000 Benefit-in-Kind Trap
If your overdrawn DLA exceeds £10,000 at any point in the tax year, HMRC classifies it as an employment “Benefit in Kind” (an interest-free loan from your employer).
- For You: You must declare the loan on your Self Assessment. You will pay Income Tax on the “official rate of interest” (currently 2.25%) that you should have been paying the company.
- For the Company: Must report the loan on form P11D and pay Class 1A National Insurance (13.8%) on the benefit value.
Note: If the loan stays strictly under £10,000 for the entire tax year, no BiK tax is due.
The Section 455 Tax Penalty (33.75%)
To stop directors from using company funds as permanent tax-free cash, HMRC levies a 33.75% Corporation Tax charge (known as Section 455 tax) on any loan balance left unpaid long after the company’s financial year ends.
Company Year-End – Day 0
Your company’s accounting period ends. If your DLA is overdrawn, the clock starts ticking.
The Repayment Window – Months 1-9 after the Year-End
You have exactly 9 months and 1 day from your year-end to clear the overdrawn balance. You can do this by paying cash back into the company account, or by officially declaring a dividend/bonus to clear the debt.
Section 455 Tax Triggered – 9 Months + 1 Day
If the loan remains unpaid, the company must pay a 33.75% tax on the outstanding DLA balance alongside its normal Corporation Tax bill.
Reclaiming the Tax – Future Finacial Years
S455 is a temporary tax. If you eventually repay the loan to the company (or write it off), HMRC will refund the 33.75% to the company. However, the refund is only issued 9 months after the end of the accounting period in which you repaid it, meaning your company could be without that cash for nearly two years.
CARE: The “Bed and Breakfasting” Anti-Avoidance Rule
You cannot simply repay the loan on day 364 to avoid the tax and withdraw the money again on day 366. HMRC’s 30-day rule dictates that if you repay a loan of more than £5,000, and take out a new loan within 30 days, the repayment is ignored for tax purposes, and the 33.75% Section 455 tax will still apply to the original balance.
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