The director's loan account explained
The money that flows between you and your limited company outside of salary and dividends - explained
The director's loan account (DLA) records money that flows between you personally and your limited company outside of salary and dividends. It is one of the most important accounts to keep track of.
When the DLA is in credit
If you have put personal money into the company or paid a business cost from a personal account, the DLA shows a credit balance. The company owes this money back to you. You can withdraw it tax-free at any time.
When the DLA is overdrawn
If you have taken more money from the company than you are owed, the DLA is overdrawn. An overdrawn DLA is a loan from the company to you and triggers a Corporation Tax charge (Section 455 tax) of 35.75% if not repaid within 9 months of the year-end. If the overdrawn balance of the DLA exceeds £10k at any point during the tax year and the director has not paid interest on the loan, it will be treated as a benefit in kind on the balance. The deemed benefit will be equal to the interest on the balance for the entire year using HMRC's Official Rate, which for 26/27 is 3.75%.
💡 Good to know: We track your DLA as part of our work on your accounts. Check your DLA balance in Xero under ‘Accounting’, then ‘Chart of Accounts’. Contact us before taking any significant sum from the company outside of payroll or a declared dividend.
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