Owner-managers who run personal spending through the company bank account often find out about director's loan account rules the hard way. The £10,000 beneficial loan threshold and the 9-month repayment deadline are two of the most common traps, and they are both straightforward for HMRC to identify from the company records and tax filings.
This guide explains what a director's loan account actually is, why HMRC pays attention to it, the two specific tax problems that trigger when it goes overdrawn, and what to do if you have already crossed one of the lines.
What a director's loan account actually is
A director's loan account, almost always shortened to DLA, is just a running record of every transaction between you and your own company that is not salary, dividend, or expense reimbursement. If you put money into the company, it goes onto your DLA as money the company owes you. If you take money out without it being formally classified as salary or a declared dividend, it goes onto the DLA as money you owe the company.
A DLA in credit (the company owes you) is fine and unremarkable. A DLA that is overdrawn (you owe the company) is also fine in principle, and happens in many small companies. Where it gets expensive is when the overdrawn balance crosses certain thresholds or stays overdrawn for too long.
Why HMRC pays attention
The corporation tax return and the company's own records give HMRC the main route into your director's loan position, and larger or unrepaid loans can also be visible in the published statutory accounts, although the level of detail depends on the size of the company. Overdrawn, large, or growing director's loan accounts are exactly the kind of pattern HMRC's compliance teams are trained to look for.
HMRC pays particular attention because using the company as a personal bank account is a classic way to extract value from the company while deferring or avoiding income tax. It is also one of the easier behaviours to police, because the evidence is in the accounts.
Trap 1: The £10,000 benefit-in-kind threshold
If your overdrawn DLA exceeds £10,000 at any point during the tax year, the loan can give rise to a benefit in kind. That means you may owe income tax on the deemed interest, calculated using HMRC's official rate, and the company may also owe Class 1A National Insurance on the benefit.
As a worked example, suppose your overdrawn DLA sits at £20,000 for a full tax year. The official rate of interest for 2025/26 is 3.75%, so the deemed interest is £750. A higher-rate taxpayer would owe income tax of 40% on that, or £300. The company would also owe Class 1A National Insurance on the £750 at the prevailing rate. The numbers are not enormous, but they are an annoying surprise for owner-managers who did not realise they were going to land.
The benefit-in-kind charge is avoidable if you charge yourself interest at HMRC's official rate. If you pay the official-rate interest into the company, the deemed BIK is reduced to nil. Your accountant can document this with a simple loan agreement.
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Try our HMRC Red Flag Checker free, here on this site →Trap 2: The Section 455 charge
This is the bigger one. If your overdrawn DLA is not fully repaid within 9 months and 1 day of the end of the company's accounting period, the company itself owes a Section 455 tax charge. The rate is 33.75% of the unrepaid balance. So an unrepaid DLA of £15,000 at the 9-month deadline costs the company £5,063 in tax.
The Section 455 charge is technically recoverable, but the company has to claim the relief once the loan has been repaid or otherwise cleared. The claim cannot be made until 9 months and 1 day after the repayment date, so even with a clean repayment you are looking at an 18-month cycle from incurring the charge to getting the money back, and the relief does not arrive automatically. In the meantime, the company is out of pocket.
This is the trap that catches most owner-managers. They take money out of the company expecting to repay it later, the year-end comes and goes, and then 9 months later they get a corporation tax bill they were not expecting. The S455 charge is not optional, and HMRC will pursue it.
How to avoid the traps
There are four legitimate routes to clearing an overdrawn DLA before the 9-month deadline. The first is to declare a dividend. If your company has distributable profits, the directors can vote to pay you a dividend, and you credit that dividend against your DLA balance. You then owe personal income tax on the dividend at the dividend rates (8.75% basic, 33.75% higher, 39.35% additional rate), but you have avoided the company-level S455 charge.
The second route is to pay yourself salary or a bonus. The company pays the gross amount through PAYE, you pay income tax and National Insurance on it, and the net amount credits the DLA. This is more expensive in tax terms than a dividend in most cases, but it works.
The third is to repay the loan in cash from your personal funds. If you have the money to put back in, this is the cleanest route.
The fourth is to write off the loan. The company forgives the debt, but the amount written off is usually taxed on you personally, and for NIC purposes HMRC generally treats it as earnings liable to Class 1 National Insurance. That often makes a write-off less attractive than clearing the balance by dividend or repayment.
The anti-avoidance rules you need to know about
HMRC anticipated the obvious workaround, which is to repay the loan briefly to avoid the 9-month deadline and then take it out again. The "30-day rule" says that if you repay £5,000 or more and re-borrow £5,000 or more within 30 days, the repayment is ignored for Section 455 purposes. The "£15,000 rule" goes further: if your overdrawn DLA at any point in the period reaches £15,000, and you re-borrow within a "reasonable time" of repaying with the intention of doing so all along, the S455 charge still applies even outside the 30-day window.
Both rules are designed to stop "bed and breakfasting" the loan for one day around the deadline. If you are tempted to clear the DLA briefly and then take it back out again, talk to your accountant first. Getting it wrong is worse than not trying.
What to do if you have already missed the deadline
If your company year end was more than 9 months ago and your DLA was overdrawn at that point, the Section 455 charge is technically already due. The corporation tax return for the relevant period must include it. You can still repay the loan after the deadline, but the S455 charge has already crystallised, and the refund process takes another 9 months from the eventual repayment.
The worst response is to ignore the corporation tax return. HMRC will eventually catch up, the charge will still be due, and there will be late-filing penalties on top. If you are in this position, the practical answer is to get your accountant involved and consider voluntary disclosure. Coming forward before HMRC opens an enquiry is usually cheaper than waiting, although the specifics depend on your facts.
Next Step
Check your director's loan account balance now. If it is overdrawn and your company year end was within the last 9 months, speak to your accountant this week about repayment options before the deadline. If you want a broader view of your HMRC compliance risk including how the DLA fits in, use the HMRC Red Flag Checker for a personalised assessment.
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