Director's Loan Account: What It Is, How It Works, and What You Must Know

When you borrow money from your own limited company in the UK, you’re using a director's loan account, a record of all money you’ve taken from or put into your company that isn’t salary, dividends, or expense reimbursement. Also known as director’s loan, it’s not a personal bank account—it’s a ledger inside your company’s books that HMRC watches closely. If you take more than you’ve put in, you owe the company. If you put more in than you take out, the company owes you. Simple. But the rules around it? Not so much.

Many directors think a director's loan account is just a flexible way to move cash in and out of their business. But HMRC treats it like a loan, not a piggy bank. If the balance is overdrawn (you owe the company) at the end of the financial year, and it’s not repaid within nine months, your company must pay a 32.5% tax charge under Section 455, a tax on loans to participators that applies when directors owe money to their own company. That’s not a fine—it’s a real tax bill. And if you don’t repay it, the tax stays on the books until you do. Worse, if you don’t repay it before you leave the company or die, HMRC can treat the outstanding amount as a dividend, which means you owe income tax on it too.

On the flip side, if you lend money to your company, that’s a credit balance. It’s not taxable income for you, but the company must keep proper records. Some directors use this to fund startup costs without taking a salary. But if the company pays you interest on that loan, you must declare it as income. And if the interest rate is below market rate, HMRC may reclassify part of it as a benefit in kind.

It’s not just about tax—it’s about control. A messy director's loan account can make your company look financially unstable to investors or lenders. It can also cause problems during audits or if you ever sell the business. Buyers want clean books. A clear, balanced director’s loan account shows you’ve run things properly.

You’ll find posts here that break down exactly how to set up and track this account without an accountant. You’ll see real examples of what happens when you miss the 9-month repayment window, how to structure repayments to avoid penalties, and how to use this tool legally to smooth cash flow during slow months. We’ll show you how to spot red flags in your records, what HMRC looks for in filings, and how to fix mistakes before they cost you thousands.

This isn’t theory. These are the same rules that have tripped up small business owners who thought they could treat their company like their personal wallet. The posts below give you the exact steps to get it right—from logging your first withdrawal to closing the account cleanly when you exit the business.