Director's loan account: complete guide

Money introduced by the director, personal bills paid for the company and undrawn salary or dividends can create credit. Personal costs paid by the company, cash withdrawals and drawings not covered by salary or valid dividends create debit entries.

Keep receipts, board minutes, dividend vouchers and loan statements. Calling a payment a dividend after year end does not make it legal if distributable reserves and approval did not exist when it was taken.

A credit balance is money the director can normally withdraw without further income tax because it is repayment of an existing debt. The company can pay interest if agreed and commercially reasonable.

Interest paid to a director is normally deductible for the company, but the company may need to deduct basic rate tax, report it on form CT61 and the director declares the gross interest personally.

An overdrawn balance is an asset of the company and a personal debt of the director. If it remains outstanding nine months and one day after year end, the company can owe s455 tax at 35.75%.

If the balance exceeds £10,000 and insufficient interest is paid, a beneficial loan charge can arise with P11D reporting and Class 1A National Insurance for the company.

Repay cash, offset genuine expenses or credit, declare a lawful dividend from distributable reserves, or process salary or bonus through payroll. Compare the tax and cash effect before choosing.

Bed and breakfasting rules can ignore a repayment followed by new borrowing within 30 days, and a wider arrangements rule can apply to planned redrawings above the statutory threshold.

Reconcile the loan before year end and again before the nine month deadline. The accounts can disclose director advances, and the CT600 supplementary information reports loans and section 455 tax.

A written loan agreement, approval process and monthly transaction review prevent the balance becoming an expensive surprise. Rates and deadlines are reviewed for 2026/27, but HMRC interest rates and individual circumstances can change the result. Check the linked official guidance or ask us before acting.