Director's Loan Account

A record of money borrowed from or lent to a limited company by its director, separate from salary and dividends, which must be repaid within defined tax rules to avoid HMRC tax charges.

Many founders unknowingly create tax liabilities by taking money from their company informally without structuring it correctly. Understanding the director's loan account prevents unexpected tax bills and ensures clean financial records.

A founder takes £3,000 from her company account to cover a personal expense, intending to repay it. Her accountant records this in her director's loan account and ensures it is repaid within nine months of the company's year-end to avoid a 32.5% Section 455 tax charge.