What is a director's loan account in company accounts?
What is a director's loan account?
A director's loan account (DLA) records money passing between a director and the company that is not salary, dividends or expense repayments. GOV.UK says the balance must be included on the balance sheet in the annual accounts.
The balance can go either way:
- In credit: the director has put money in. The company owes the director.
- Overdrawn: the director has taken out more than they put in. The director owes the company.
Where it appears in the accounts
The statutory format has no separate DLA heading. It sits inside one of two lines:
| DLA position | Balance sheet line | Usual note wording |
|---|---|---|
| Company owes the director | Creditors due within one year, or due after more than one year if formally deferred | "Other creditors" or "Directors' loan account" |
| Director owes the company | Debtors, within current assets | "Other debtors" or "Amounts owed by directors" |
Director loans repayable on demand fall within one year even if nobody expects repayment.
Section 413 of the Companies Act 2006 requires the notes to give details of advances and credits granted by the company to its directors: amount, interest rate, main conditions, and amounts repaid, written off or waived. Micro-entities must put this information at the foot of the balance sheet (s472(1A)), so it is visible even in the shortest filed accounts.
Tax when the account is overdrawn (rules as of October 2026)
If the company is a close company (broadly, controlled by five or fewer shareholders or by its directors) and the director is also a shareholder, section 455 of the Corporation Tax Act 2010 charges the company tax on a loan still outstanding 9 months after the end of the accounting period in which it was made.
- Rate: the dividend upper rate for the tax year the loan was made. That is 35.75% for loans made on or after 6 April 2026, 33.75% for loans made from 6 April 2022 to 5 April 2026, and 32.5% for earlier loans.
- Due date: the day after the end of the 9 months following the accounting period end, often called "9 months and 1 day".
- Refund: the company can reclaim the tax once the loan is repaid, written off or released, but not before 9 months and 1 day after the end of the accounting period in which that happened, and must claim within 4 years.
- Recycling: repaying and re-borrowing £5,000 or more within 30 days, or repaying over £15,000 with a new loan already arranged, does not avoid the charge.
Separately, if the director owes more than £10,000 at any time in the tax year and pays interest below HMRC's official rate, the cheap loan is a benefit in kind with Income Tax for the director and National Insurance for the company.
Worked example
Example (illustrative figures, not a real company):
A director takes £30,000 from the company in May 2026 and the accounting period ends on 31 December 2026. If none of it is repaid by 30 September 2027, s455 tax of £10,725 (35.75% of £30,000) is due on 1 October 2027. If the director repays £20,000 by 30 September 2027, the charge is on the £10,000 still outstanding: £3,575.
What it tells a credit checker
A large credit balance means the director is funding the company. That is common, but the director ranks as an unsecured creditor alongside you unless the loan is secured or subordinated, and can usually demand repayment at any time.
In our data, 56.8% of active real estate companies report net current liabilities, against 36.2% across all UK companies, as shown in our negative net assets data. Large creditors due within one year in these companies are often director loans used to buy property, so check the note before reading the figure as trade debt. We do not measure director's loan balances separately.
An overdrawn DLA is the opposite signal: money has gone out to the director. A growing overdrawn balance alongside HMRC debts deserves a question. To see how a company's debtors and creditors have moved, search the company.
Sources
- GOV.UK: Director's loans
- GOV.UK: Director's loans, if you owe your company money
- Corporation Tax Act 2010, section 455 (charge on loans to participators) and section 439 (close company)
- Income Tax Act 2007, section 8 (dividend upper rate 35.75%)
- Income Tax (Earnings and Pensions) Act 2003, section 180 (£10,000 threshold)
- Companies Act 2006, section 413 and section 472 (disclosure)
FAQ
What does an overdrawn director's loan account mean?
It means the director owes the company money because they have taken out more than they put in, outside salary, dividends and expense repayments. In the accounts it appears as a debtor. If the director is a shareholder in a close company and the balance is not repaid within 9 months of the year end, the company pays s455 tax, refundable once the loan is cleared.
Is a director's loan an asset or a liability?
It depends on direction. When the director owes the company, it is an asset shown in debtors. When the company owes the director, it is a liability shown in creditors. The balance can switch during a year, so read the director's loan note.
Can a company write off a director's loan?
Yes, but it is taxed. GOV.UK says a loan written off or released is treated as income: the director pays Income Tax through Self Assessment and Class 1 National Insurance is deducted through payroll. The company can reclaim any s455 tax already paid. A write-off must also appear in the s413 disclosure in the notes.
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