Talk to us today in confidence0800 970053907833 240747

A guide to Director's Loan Accounts

Written by Robert Moore Marketing Manager 1 October 2019

Be the first to comment

A guide to Director's Loan Accounts

A director’s loan account (DLA) is the record of transactions between a company and its directors, excluding salary, expense repayments and dividends.

When directors lend the company money, for instance; to fund daily trading activities and purchase assets, the director becomes a creditor of the company. Typically, directors start DLAs when they provide start up capital for their company.

When a director borrows money from the company, this is known as a ‘overdrawn director’s loan’. In such a scenario, the director is a debtor of the company and expects repayment in the future.

The problem with DLA's is when the account becomes overdrawn and you cannot afford to repay it

The money a director takes out of a company (not dividends or salaries), which exceeds the value of the money which they have put in to the company, is classed as a taxable benefit for them . Only when the loan is repaid, is the DLA disregarded as a company asset, until then, the company should keep note of this asset.

When the loan is repaid within nine months and one day of the company’s year-end, it is likely that their will be no impact for the director or company.  It is when the director is unable to pay in this time and the amount borrowed is £10,000 (or more!) that issues accumulate.

Overdue payments on director’s loans mean the company has an additional 32.5% Corporation Tax to pay, on the amount outstanding. This extra 32.5% is repayable to the company by HMRC once the loan is repaid to the company by the director. If you do not repay your director’s loan, instead, this may turn into a 32.5% personal tax cost – not repaid by HMRC once the loan is repaid.

Tips:

  • As a director, do not borrow more than £10,000 from the company unless you have shareholder approval – anything over £10,000 in value, is not interest free!
  • Once money is taken out of a company by a director, document it so that you prevent borrowing spiralling out of control and having no plan or structure to repay the loan
  • Include the figures in the annual accounts of the balance sheet
  • If you have an overdrawn director’s loan account and/or your company is struggling financially, contact us today. We can offer you friendly, expert advice to help you deal with this account and find a solution.

See more information on Directors Loan Accounts here 

Categories: Implications for Directors, Worried Director What Will Happen To Me After Liquidation?

"KSA Group which owns this site, will help you fix problems in your business. We won't charge for any initial advice or face to face meetings. We speak in English. We will save you money and your precious time.  You can come to any of our offices

"We also follow up any meeting with a full "solutions report" which runs on average to 30 pages valuable free advice!!  No other practitioner offers this service.  In this report we advise on ALL the options and explain them clearly.  We advise on a course of action given the information you have given us ( the more information we have the better we can advise!)"

You are currently offline. Some pages or content may fail to load.