Director's Loan Account: Overdrawn DLA and s455 Tax (2026)

Quick answer: A director's loan account (DLA) records money you take from or put into your company that is not salary, dividends or expense repayments. If the DLA is overdrawn at the year end and not repaid within 9 months, the company pays s455 Corporation Tax at 33.75% on the balance, which it can reclaim once the loan is repaid. Loans over £10,000 can also create a benefit in kind.

The director's loan account is where good intentions in a small company go to become tax bills. You pay a personal bill from the company card, move a few thousand pounds across before a dividend is declared, or cover a supplier from your own pocket, and each of those entries lands in the DLA. This guide explains how the account works, when an overdrawn DLA triggers s455 tax, how the £10,000 benefit rule works and the cleanest ways to clear the balance. If you are still setting up, start with how to set up a limited company, and keep the company's invoicing in the free invoice generator so income is easy to trace.

This is general information based on HMRC guidance as of 2026, not tax advice. Director's loans have several overlapping rules, so check your own position with an accountant.

What a director's loan account is

A limited company's money belongs to the company, not to you. You can take it out in only a few ways that have a clear tax treatment: salary through payroll, dividends from post-tax profits, and reimbursement of genuine business expenses you paid personally. GOV.UK defines a director's loan as anything else you, or a close family member, take from the company that is not one of those and is not money you previously paid in.

The DLA is simply the running ledger of those movements:

• Debits (you owe the company): cash withdrawals with no dividend declared, personal purchases on the company card, personal bills paid by the company, advances against future dividends.
• Credits (the company owes you): money you put in to fund the company, business costs you paid personally and have not been reimbursed, declared dividends or net salary you have not yet drawn.

At the end of each accounting period the net balance goes on the balance sheet. A DLA in credit is usually harmless. An overdrawn DLA is where the tax rules bite.

Overdrawn director's loan account: the s455 charge

When the DLA is overdrawn at the end of the company's accounting period, the company must report the loan on form CT600A with its Company Tax Return. What happens next depends on whether the balance is repaid within 9 months of the year end.

Situation	What the company does	Tax effect
Overdrawn balance repaid within 9 months of year end	Report it on CT600A	No s455 tax, provided the bed and breakfasting rules are not triggered
Balance still outstanding after 9 months	Report on CT600A and pay s455	33.75% of the outstanding amount (32.5% for loans made before 6 April 2022)
Repaid, then re-borrowed within 30 days (loans over £5,000)	Treated as not repaid	s455 at 33.75% on the original loan
Loan written off or released	Deduct Class 1 NI through payroll	Director pays Income Tax through Self Assessment; company can reclaim any s455

The GOV.UK guidance on owing your company money sets these rules out. The key point is that s455 is a timing charge, not a permanent tax: the company gets it back after the loan is cleared. But it ties up a third of the loan in cash, and HMRC charges interest if s455 is paid late, which is not refundable.

Why the 9-month window matters

The s455 deadline lines up with the Corporation Tax payment date: 9 months and 1 day after the end of the accounting period. For a 31 March 2026 year end, a loan repaid by 31 December 2026 escapes s455, while anything still owed is added to the Corporation Tax due on 1 January 2027. See our Corporation Tax guide for how the main bill is worked out.

Bed and breakfasting rules

HMRC anticipated the obvious trick of repaying just before the deadline and borrowing straight back. Two anti-avoidance rules apply:

• The 30-day rule: if a loan over £5,000 is repaid and a new loan of £5,000 or more is taken within 30 days before or after the repayment, the repayment is matched to the new loan.
• The arrangements rule: if the loan is over £15,000 and, when it was repaid, there were arrangements to borrow again, the repayment is also ignored.

Repayments by a dividend or bonus that is properly taxed on you are not caught by the 30-day rule, which is why clearing a DLA with a declared dividend is common.

The £10,000 benefit in kind rule

Separately from s455, a director's loan can be a taxable benefit. If the total owed exceeds £10,000 at any point in the tax year and you pay no interest, or interest below HMRC's official rate, the company must treat the loan as a benefit in kind:

• The company reports it on form P11D after the tax year.
• You pay Income Tax on the benefit, broadly the interest you would have paid at the official rate minus anything you actually paid, through your Self Assessment tax return.
• The company pays Class 1A National Insurance, which is 15% in 2026/27, on the value of the benefit.

HMRC publishes the official rate each year. You can avoid the benefit by paying the company interest at or above that rate, which then becomes taxable income in the company's hands.

Worked example: an overdrawn DLA at the year end

Sam is the sole director and shareholder of Sam Consulting Ltd, which has a 31 March year end. During 2025/26 Sam draws £2,000 a month from the company account for 9 months without declaring dividends: £18,000 in total. Sam pays the company no interest on the loan. At 31 March 2026 the DLA is £18,000 overdrawn.

Option 1: do nothing. The balance is still outstanding on 1 January 2027, so s455 applies:

• s455 tax: £18,000 x 33.75% = £6,075, payable with the Corporation Tax due on 1 January 2027.
• The loan also exceeded £10,000 during the year, so there is a benefit in kind to report on a P11D, plus Class 1A NI for the company.
• If Sam repays in, say, June 2027, the company can reclaim the £6,075, but not until 9 months and 1 day after the end of the accounting period in which the repayment happened: 1 January 2029 for a year ending 31 March 2028.

Option 2: clear it with a dividend. The company has ample retained profits. Before 31 December 2026 the board declares an £18,000 dividend, credited to Sam's DLA, which brings the balance to zero. Sam's salary already uses the Personal Allowance and Sam is a basic rate taxpayer:

• Dividend allowance: £500 at 0%.
• Remaining £17,500 at 10.75% = £1,881.25 personal dividend tax.
• No s455 is due, because the loan was cleared within 9 months.

Option 2 costs real tax, £1,881.25, but it is final. Option 1 locks up £6,075 of company cash for roughly two years and still leaves Sam owing £18,000. In practice, the right answer depends on profits, your tax band and whether you could repay from personal funds. Our guide to dividend tax rates for 2026 shows how the bands apply above basic rate.

How to clear an overdrawn director's loan account

1. Check the balance now, not at the year end. Reconcile the DLA in your bookkeeping each month so you know what you owe. Our bookkeeping basics guide shows how to keep a clean ledger.
2. Confirm distributable profits. A dividend is only lawful if the company has enough accumulated profits after tax. Draw up management accounts or a profit and loss statement first.
3. Choose the repayment method. Repay from personal funds, declare a dividend, pay a bonus through payroll, or reimburse unclaimed business expenses you paid personally.
4. Document it. Hold a board meeting, minute the dividend or bonus, and issue dividend vouchers. Record the journal against the DLA.
5. Clear it within 9 months of the year end. Do not re-borrow £5,000 or more within 30 days.
6. Report on CT600A. Even if no s455 is due, the year-end balance must be disclosed with the Company Tax Return.
7. Change the habit. Pay yourself on a regular schedule through salary and planned dividends instead of ad hoc withdrawals.

When the company owes you: a DLA in credit

A credit balance arises when you lend the company money, often at start-up, or pay business costs personally. The company can repay you at any time with no tax on the repayment itself, because it is your own money coming back. If you charge interest, the company deducts 20% Income Tax, pays it to HMRC quarterly on form CT61, and claims the interest as an expense. You declare the gross interest on your tax return.

If you pay company costs personally, keep receipts and record them in the DLA straight away. Unclaimed expenses are one of the easiest ways to reduce an overdrawn balance at year end, and they are often forgotten. Our guide to tracking business expenses covers simple systems.

Recording director's loan account entries correctly

Most DLA problems are bookkeeping problems that turn into tax problems. A tidy ledger needs a date, a description and evidence for every entry. The table below shows how common transactions should be posted.

Transaction	DLA effect	Evidence to keep
You transfer £3,000 from the company to your personal account with no dividend declared	Debit £3,000 (you owe more)	Bank statement and a note of the purpose
You pay a £240 software subscription for the company on your personal card	Credit £240 (company owes you)	Receipt or invoice in the company's name
The board declares a £5,000 dividend but you leave it in the company	Credit £5,000	Board minutes and dividend voucher
The company pays your £600 personal car insurance	Debit £600	Insurance invoice
You lend the company £10,000 to buy equipment	Credit £10,000	Loan note or board minute and bank statement

Run through those five entries from a zero balance and the DLA would end £11,640 in credit (-£3,000 + £240 + £5,000 - £600 + £10,000), meaning the company owes you that amount and can repay it tax free. Reverse the order of a couple of them across a year end and the picture can look very different on the balance sheet date, which is why monthly reconciliation matters. If you are VAT registered, remember the VAT on business costs you pay personally can only be reclaimed with a valid VAT invoice addressed to the company.

Close family members count too

GOV.UK's definition covers money taken by a director's close family as well as by the director. A company paying a spouse's personal bills, or lending money to an adult child, can create a director's loan and the same s455 and benefit in kind consequences. Record these transactions in the DLA and treat them exactly like your own withdrawals.

DLA mistakes that cost directors money

• Treating the company account as a personal wallet. Every personal payment becomes a loan entry.
• Declaring dividends without profits. An unlawful dividend can be treated as a loan that must be repaid, putting you back where you started.
• Ignoring the £10,000 line. Even a short-lived balance over £10,000 in the tax year can create a P11D benefit.
• Forgetting the s455 reclaim. Once the loan is repaid, diarise the reclaim date. HMRC will not refund it automatically.
• Not separating personal and business banking. A dedicated business bank account makes the DLA far easier to track.
• Closing the company with an overdrawn DLA. On liquidation an outstanding loan is usually collected or written off and taxed. Read how to close a limited company before you start.

Keep the director's loan account clean from day one

The best way to avoid s455 is to plan how you take money out: a regular salary, dividends declared from profits, and expenses reimbursed against receipts. Our article on the director salary vs dividends split shows how to set that plan for 2026/27, and how to pay yourself as a business owner gives the wider picture. A director's loan account that stays near zero is a sign the company's money is under control.

Clean income records make all of this easier. Raise every client invoice in the company's name with the free invoice generator, number them with the invoice number generator, and you will always be able to show exactly what came in and what went out. No sign-up is needed, and your PDF invoice is ready to send in a few minutes.