Director's loan account — the founder's blind spot

What is a DLA?

Your Ltd company is a separate legal entity from you. Any money that flows between you and it — outside of paid salary and declared dividends — is a loan in one direction or the other. The director's loan account tracks this running balance.

Typical situations that create DLA movements:

• You paid for a client lunch on your personal card → company owes you (DLA credit)
• You took £2,000 out of the company bank for personal expenses → you owe company (DLA debit)
• You forgot and used the company card at Sainsbury's → DLA debit
• You haven't declared the dividends yet but transferred them anyway → DLA debit until properly documented
• The company bought your old laptop from you → DLA credit

Credit vs overdrawn

DLA in credit = company owes you money. You've put more in than you've taken out. Generally fine; the company can repay you tax-free at any time.

DLA overdrawn = you owe the company money. Multiple HMRC consequences, and this is where most founders get caught.

The £10,000 benefit-in-kind threshold

If your DLA is overdrawn by more than £10,000 at any point in a tax year, HMRC treats the loan as a benefit-in-kind. You must:

• Charge yourself interest at the official rate (2.25% for 2025/26)
• OR pay income tax on the notional interest as a benefit
• Report it on a P11D form
• Pay Class 1A NIC on it

The official rate changes annually. Most founders solve this by repaying down to under £10k before year-end or declaring a dividend to clear the balance.

The 9-month s455 trap

This is the bigger one. If your DLA is overdrawn 9 months after your company's accounting year-end, HMRC charges section 455 corporation tax:

s455 rate = 33.75% of the overdrawn balance (matches the higher-rate dividend tax rate).

Example: FY ends 31 March. Your DLA is overdrawn £40,000 at year-end. By 1 January (9 months later) it's still overdrawn. You owe HMRC £40,000 × 33.75% = £13,500 in extra corporation tax.

The s455 charge is refundable when you eventually clear the loan — but HMRC holds your money in the meantime, and the refund process takes 9 months. Cashflow disaster.

How DLAs typically go wrong

1. You incorporate, open a company bank, and stop being careful about which card you use.
2. The Stripe payouts arrive in the company account, you transfer some to personal, don't declare dividends, don't set up a salary.
3. Year-end arrives, accountant looks at the books, points out that £35k flowed out of the company that wasn't accounted for.
4. You either "document it as dividends" retrospectively (which requires dividend vouchers + board minutes dated correctly — fiddly) or accept it's an overdrawn DLA.
5. 9 months later: s455 charge.

How to keep DLA clean

• Pay yourself a salary. Even £12,570/year (the personal allowance) is a tax-efficient regular outflow with proper PAYE / NIC behind it.
• Declare dividends quarterly with proper paperwork. Dividend voucher + board minute dated before the transfer. See our dividends guide.
• Use the company card for company spend, personal card for personal spend.Reimburse via expense claims for the gnarly edge cases.
• Watch the DLA balance monthly. Don't wait for year-end to discover it's £30k overdrawn.
• Clear it before year-end + 9 months. Either repay from personal funds, declare a dividend, or accept s455.

What about the "bed and breakfasting" trick?

Some founders try to clear their DLA on day 1, then re-borrow on day 2 to game the 9-month rule. HMRC's "bed and breakfasting" anti-avoidance rules catch this: repayments within 30 days of new borrowing are treated as if they never happened, and repayments of £5k+ followed by similar new borrowing within any timeframe are also treated as never-repaid. Don't.

What about £0 DLA at year-end but it was overdrawn during the year?

s455 is calculated on the year-end + 9 months position. If you cleared it before then, no s455. The £10k benefit-in-kind charge, however, looks at the running balance during the year — so a brief overdrawn period over £10k can still trigger it.