Director’s loan accounts in plain English

If you run your own limited company, it can feel natural to treat the company’s bank account as your own. But the company is a separate legal person, and its money is not yours to take whenever you like.

When money moves between you and your company in a way that isn’t salary, dividends or a repayment of expenses, it goes through your director’s loan account. Here is what that means, and why it is worth keeping an eye on.

Update, October 2026: the rate of the extra Corporation Tax on an overdrawn director’s loan is set by law at the dividend upper rate for the tax year the loan is made. That rate went up from 6 April 2026, so the charge is higher on loans made since then (Corporation Tax Act 2010, section 455; Finance Act 2026, section 4). The other rules in this article haven’t changed.

What is a director’s loan account?

GOV.UK describes a director’s loan as money you, or close family members, get from your company that is not a salary, a dividend, an expense repayment, or money you have previously paid into or lent the company.

You must keep a record of any money you borrow from or pay into the company. That record is usually called the director’s loan account. At the end of the company’s financial year, the amount you owe the company, or the company owes you, goes on the balance sheet in the annual accounts.

How a loan account builds up

Loan accounts often grow without anyone deciding to lend money. Common causes include:

• paying personal bills or shopping from the company account;
• taking regular drawings, as you might as a sole trader, before dividends have been declared;
• paying yourself “dividends” when the company doesn’t have enough profits available to cover them;
• the company paying for something that turns out to be personal rather than business spending.

It can also work the other way. If you paid for company costs personally, or put your own money in to help the business get started, the company may owe you. That is often called a loan account in credit.

Why the year-end matters

If the loan account is overdrawn, meaning you owe the company money, the timing of repayment matters. If you’re a shareholder as well as a director, as most owner-managers are, and the loan isn’t repaid within 9 months of the end of the company’s accounting period, the company has to pay an extra charge of Corporation Tax on it. The company shows the loan on form CT600A with its Company Tax Return. The charge can be reclaimed once the loan is repaid or written off, but not until 9 months and 1 day after the end of the accounting period in which that happens, so in the meantime the company’s cash is tied up.

There are also rules on what counts as repaying a loan. Repaying it just before the deadline and then borrowing the same money again shortly afterwards may not work in the way you expect. This is an area where it’s worth getting advice before you act.

Benefits in kind and interest

If the loan is over a certain amount at any time in the tax year, and you pay less interest than HMRC’s official rate, the loan counts as a benefit in kind. The company reports it on form P11D and pays Class 1A National Insurance on it, and you pay Income Tax on the benefit. If the company writes off or releases the loan, you’ll usually have Income Tax to pay on the amount written off, and Class 1 National Insurance is due through the company’s payroll.

GOV.UK’s guide to director’s loans sets out the responsibilities on both sides, and its guide to loans provided to employees covers the benefit-in-kind rules.

Keeping it under control

• Keep a running record of every personal payment and every amount you put in.
• Review the balance with your bookkeeper or accountant every month or quarter, not just at the year-end.
• Decide in advance how you will take money out: salary, dividends from available profits, or a properly recorded loan.
• If the account is overdrawn, plan when and how it will be cleared well before the year-end.

Sources

Our main sources are HMRC and GOV.UK:

• Director’s loans
• Running a limited company: taking money out of a limited company
• Expenses and benefits: loans provided to employees

Talk to us about your director’s loan account

A director’s loan account is easy to let drift and harder to put right later. If you’re not sure where yours stands, or you’re thinking of borrowing from your company, we can look at the figures with you and explain the options. Call us on 020 7164 0225, send us a WhatsApp message or email your tax question to hello@ibandco.co.uk.

You can also read about our Director Tax Planning service.

Want to see how salary and dividends compare for your company? Try our Salary vs Dividend Calculator.

First published 13 February 2024. Tax content checked on 9 October 2026. This article reflects the rules at the date it was first published. Where something has changed since, we’ve added an update note. Rules and rates change, so please check with us before acting.

Please note: this article is general information based on our understanding of UK tax rules at the date shown above. It is not advice for your circumstances, and tax rules and rates can change. Please speak to us before acting on it.