DLA in one paragraph: the Director's Loan Account is a notional account tracking who owes whom — you to the company, or the company to you. Director's loans to the company (credit balance) are fully tax-free to repay back to you. Director's loans from the company (overdrawn DLA) trigger Section 455 tax of 33.75% if not repaid within 9 months 1 day of year-end. Loans above £10,000 are reportable on P11D as a benefit-in-kind and you must pay HMRC's official rate of interest (3.75% in 2026/27) or be taxed on the difference.
What the DLA actually is
It's a balance-sheet entry, not a literal bank account. Every transaction between you and your company that isn't formal salary, dividend, expense reimbursement, or pension contribution affects the DLA:
- You pay company expense personally: company owes you. DLA in your favour (credit).
- Company pays personal expense (mortgage, school fees, holidays): you owe company. DLA against you (debit, "overdrawn").
- You loan the company start-up funds: DLA in your favour, repayable tax-free at any point.
- Company pays you a "dividend" but board minutes are missing or profits aren't sufficient: classed as DLA, not dividend — potentially overdrawn.
Most director-shareholder companies have an active DLA throughout the year. Bookkeeping accuracy is critical — misclassified transactions can create unexpected tax bills.
Credit DLA: when the company owes you
This is the simple case. Money you've loaned the company can be repaid at any time, in any amount, free of tax (it's just returning your capital). The company can also pay you interest on the loan at a commercial rate (deductible for corporation tax, taxable for you as savings interest).
Some considerations:
- Document the loan terms (amount, interest rate, repayment date) in a board minute or loan agreement.
- If you charge interest, the company must deduct 20% tax at source under CT61 and pay HMRC, with you reclaiming/owing the balance on your Self Assessment.
- The loan is unsecured by default — if the company goes into insolvency, you're a normal creditor (low priority).
Overdrawn DLA: Section 455 tax
When you owe the company money, three tax rules apply:
- Section 455 tax (corporation tax on the company): 33.75% of the outstanding overdrawn balance at year-end, IF not repaid within 9 months and 1 day after year-end. The 33.75% matches the higher-rate dividend rate — HMRC's anti-avoidance measure.
- S455 is refundable: when you eventually repay the loan, HMRC repays the S455 tax. So in cash-flow terms it's a temporary tax, but the company funds it for potentially years.
- Bed and breakfast rule: repaying the loan and then re-borrowing within 30 days is treated as if not repaid. Crystallises S455.
The 9 months and 1 day deadline is a tight planning window. Most director-shareholders aim to clear overdrawn DLAs before the deadline through a year-end dividend declaration.
Beneficial loan: P11D and benefit-in-kind
If your overdrawn DLA exceeds £10,000 at any point in the tax year, you have a "beneficial loan" benefit-in-kind:
- The benefit is calculated as the loan balance × (HMRC official rate − actual interest charged).
- HMRC official rate for 2026/27: 3.75% (latest published).
- If you pay no interest on the loan and have £20,000 outstanding for the full year: benefit = 20,000 × 3.75% = £750.
- You pay income tax on the £750 benefit at your >The company (40% higher rate = £300 tax).
- The company reports this on form P11D and pays Class 1A employer NI on it (15% from April 2025) = £112.50.
If you charge yourself the HMRC official rate of interest on the loan, the benefit drops to zero. But the interest is then taxable income for the company at 25% CT, often making it more expensive overall than just paying the BIK tax.
Worked example: small overdrawn DLA
Director-shareholder has £15,000 personal cash flow gap in November 2026. Borrows from company. Year-end is 31 March 2027.
Option A: Repay before 31 December 2027 (9 months 1 day after year-end).
- S455 tax: £0 (loan repaid before deadline)
- Beneficial loan: maximum balance £15,000 above £10,000 threshold. Average balance ~£12,500 over year. Benefit at 3.75% (no interest charged) on £12,500 = £469
- Income tax on benefit (40%): £188
- Company NI (15%): £70
- Total tax cost: £258
Option B: Take £15,000 as additional dividend instead.
- Dividend tax (higher-rate 33.75%): £5,062
- (Corporation tax already paid on the underlying profit: at 25% = ~£3,750 implicit cost)
- Total: ~£8,812 (combined CT and dividend tax)
Option A is dramatically cheaper for a short-term cash-flow gap — provided you repay before the S455 deadline. The DLA is a legitimate short-term financing tool.
The S455 trap: when loans become "permanent"
If the loan rolls over multiple year-ends without repayment:
- Year 1: S455 due 9m1d after year-end (33.75% of outstanding).
- Loan still owed at year-end 2: another S455 calculation, with credit for prior S455 paid.
- Annual beneficial-loan BIK.
- Company has paid out the S455 cash and may not get it back for years.
If the director never repays (e.g., on liquidation) the S455 is permanently lost to HMRC. This is the anti-avoidance reason for the rate matching the higher-rate dividend.
Common DLA mistakes
- Drawing "dividends" without proper resolutions. Without board minutes declaring a dividend and confirming distributable profits, HMRC can reclassify the drawing as DLA — potentially triggering S455.
- Ignoring the 30-day bed-and-breakfast rule. Repaying just before year-end and re-borrowing in the new period doesn't reset the S455 clock.
- Forgetting beneficial loan reporting. Above £10,000, P11D is mandatory. Missing it is a penalty offence.
- Using the company as a personal bank. Repeated draws/repayments outside formal salary/dividend channels create an admin nightmare and risk HMRC reclassification.
- Mixing the DLA with director-as-customer transactions. If the company does B2B with the director personally, those transactions must be at arm's length — otherwise transfer-pricing or BIK rules can bite.
Sources
Related content for Ltd company directors
- Salary vs dividend calculator
- Dividend tax calculator
- Director's loan accounts (DLA)
- Close investment companies
- Associated companies and CT bands
- Optimal extraction by profit level
- Employer pension contributions
- Closing a company: strike-off vs MVL
- Business Asset Disposal Relief
- Dividend waivers and settlements
How UK Tax Drag holds itself to account
Every page is reviewed against the editorial standards, written from primary sources, sourced openly, and corrected publicly. No affiliate revenue. No sponsored content. No paid placements.