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Director’s Loans Explained – The Tax Trap Catching Profitable Companies.
What a Director’s Loan Account Really Represents
A Director’s Loan Account (DLA) tracks money taken from or introduced into the company outside formal payroll or dividends. Problems arise when withdrawals exceed repayments and the balance becomes overdrawn.
How Overdrawn DLAs Trigger Tax Problems
Section 455 Corporation Tax
If a loan remains outstanding nine months after year-end, the company faces an additional tax charge.
| Trigger | Consequence |
|---|---|
| Loan outstanding | 33.75% tax payable |
| Late repayment | Cashflow pressure |
Benefit in Kind
Loans over £10,000 can create a personal tax charge if interest is not charged.
Common Bookkeeping Mistakes
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Dividends declared without profits
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Personal expenses treated as business costs
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Loans repaid temporarily to avoid tax
HMRC Scrutiny Areas
HMRC focuses on patterns — not just balances — particularly where loans are repeatedly cleared and re-borrowed.
Practical Compliance Steps
| Step | Benefit |
|---|---|
| Monthly DLA review | Early detection |
| Proper dividend documentation | Legal protection |
| Timely loan clearance | Tax avoidance |
Rothstone prioritises risk prevention, not reactive corrections.
