The director's loan account, explained

Published 12 August 2026 · updated 9 September 2026 · 5 min read

A director's loan account records money owed between a director and the company in either direction. It is not a product you sign up for; it exists the moment money moves without being classified as something else.

The two directions

You owe the company. You took money out that was not salary, not a properly declared dividend, and not reimbursement of an expense. The account is overdrawn.

The company owes you. You paid for something on a personal card, or lent it money to get started. That is a credit balance, and you can draw it back without tax.

The charge that catches people

If an overdrawn loan is still outstanding nine months and one day after the company's year end, the company pays a corporation tax charge on the outstanding amount. It is refundable once the loan is repaid, but the refund is slow and the cash goes out in the meantime.

There is also a benefit-in-kind consequence where the loan exceeds a set amount and is interest-free or below the official rate.

Repaying and re-borrowing

Clearing the loan just before the deadline and taking the same money out again shortly afterwards does not work. There are anti-avoidance rules aimed precisely at that pattern.

Keeping it clean

• Run personal spending through personal accounts, not the company's.
• Declare dividends properly, with a minute and a voucher, rather than reclassifying withdrawals at year end.
• Keep expense receipts, so reimbursements are not mistaken for drawings.
• Look at the balance during the year, not nine months after it ends.

If the company cannot afford to be repaid

An overdrawn director's loan is an asset of the company. If the company becomes insolvent, a liquidator will pursue it — and that is a personal liability regardless of limited liability. This is the point at which a loan account stops being an accounting curiosity.