The single most common way UK founders accidentally borrow money from their own company. Get this wrong and HMRC sends you a tax bill that takes years to claw back.
Who should read this: Every UK founder running a Ltd company. If you've ever paid for a personal expense from the company card, taken cash before declaring a dividend, or wondered why your accountant keeps mentioning "the DLA", this is the article you needed yesterday.
A directors' loan account, or DLA, is the running record of money owed between you and your company. Every Ltd company in the UK has one for each director, whether you set it up consciously or not. The moment you take £500 out of the company bank account before declaring it as salary or dividend, you've created an overdrawn DLA. The moment you put £2,000 of your own money into the company to cover a supplier invoice, your DLA is in credit.
Most founders never think about it until their accountant flags it at year-end. By then it's usually too late to avoid the tax consequences.
This guide covers what a DLA actually is, the s455 tax charge that catches founders out (and that just went up to 35.75% from April 2026), the cash-flow trap most articles don't explain properly, the bed-and-breakfasting rules HMRC uses to close the obvious workaround, and how to handle a DLA cleanly so you don't end up paying HMRC tax that takes years to recover.
When this matters for you. Right now, if you run a Ltd company. Even if you've never knowingly taken a director's loan, you probably have a DLA. The question is whether you're managing it intentionally or accidentally.
Two states, very different consequences.
| DLA in credit (you've lent money TO the company) | DLA overdrawn (the company has lent money TO you) | |
|---|---|---|
| What it means | The company owes you. You've paid for company expenses personally, or transferred cash in. | You owe the company. You've taken cash, or had personal expenses paid from company funds. |
| Tax on you (the director) | Generally none on the principal. Optional interest you charge the company is taxable income but not subject to NIC. | Interest-free loan over £10,000 at any point in the year is treated as a Benefit in Kind (BIK), reportable on form P11D, attracts Class 1A NIC for the company and personal tax for you. |
| Tax on the company | None. Interest paid to you is a deductible expense. | s455 charge if any balance remains unpaid 9 months and 1 day after the accounting period end. Rate is 35.75% from 6 April 2026 (was 33.75%). |
| When the s455 charge bites | n/a | 9 months and 1 day after the year-end of the period in which the loan was advanced. |
| Refundable? | n/a | Yes. The s455 charge is refundable when the loan is repaid, but the refund timing is the trap. See below. |
| Anti-avoidance rules | n/a | 30-day rule and 60-day "intention to re-borrow" rule (the bed-and-breakfasting rules). |
| Investor due diligence flag | Mild positive (shows founder commitment). | Mild negative (suggests cash management issues). Often raised in fundraising DD. |
Two states, very different consequences. Track which one you're in monthly, not annually.
This is the differentiating insight on this page. The s455 charge (named after section 455 of the Corporation Tax Act 2010) is the corporation tax that hits unrepaid loans to participators. Most articles explain it as if it's a permanent tax. It isn't. It's refundable. But the timing of the refund is so brutal that founders who don't plan for it can lose 12 to 33 months of cash flow on tax they were always going to get back.
The mechanics, in sequence:
Said differently: you haven't saved tax. You've just lent HMRC almost £9,000 interest-free for two years. Founders who treat s455 as a permanent cost overstate the alarm. Founders who treat it as "just a temporary thing" understate the cash flow hit. The honest answer is: it's refundable but expensive in cash flow terms, so avoid triggering it where possible.
The other thing that just changed. Before 6 April 2026 the rate was 33.75%. The Autumn Budget 2025 raised it to 35.75% in line with the dividend upper rate increase. Loans made before 6 April 2026 still attract the old 33.75% rate; loans from 6 April 2026 attract 35.75%. Articles written before the November 2025 Budget will quote the old rate.
When founders learn about s455, the obvious thought is "I'll just repay it before the deadline, then borrow it back the next day". HMRC closed that escape route in 2013 with two anti-avoidance rules.
The 30-day rule. If you repay £5,000 or more against the loan and then borrow £5,000 or more from the company within 30 days, HMRC ignores the repayment for s455 purposes. The new borrowing is matched against the original loan, and s455 still applies to the full original amount.
The 60-day "intention" rule (technically more open-ended). If your loan exceeds £15,000 and at the time of repayment there's already an arrangement in place to re-borrow at least £5,000 (whether one week later or three months later), the repayment is ignored. This rule has no fixed timing window. If HMRC can show an intention to re-borrow, it can apply.
The exception worth knowing. Repayments made by declaring a salary, bonus, or dividend (which generate an income tax or NIC charge on the participator) are exempt from the bed-and-breakfasting rules. So if you repay your DLA by voting yourself a dividend, you can take cash out again afterwards without HMRC ignoring the repayment.
In practice, this means: cash repayments are policed. Repayments via dividend or salary are not. Most clean DLA management uses the latter.
Separate to the s455 charge but easy to confuse with it.
If your overdrawn DLA balance exceeds £10,000 at any point in the tax year, the loan is treated as a Benefit in Kind. Three consequences:
A real-world trigger to watch for. Your DLA sits at £8,000 most of the year, then spikes to £12,000 for two weeks in December before being repaid. The BIK rules still apply for the whole tax year. The £10,000 threshold is breached the moment the balance crosses it, even briefly. Founders sometimes try to manage around this with careful timing, but record-keeping has to be precise and HMRC enquiries on this point are common.
Each has its own tax profile. None is "free".
For most founders with a healthy company, the dividend route is the most efficient when paired with planning a year ahead.
The illegal dividend trap. A dividend can only be paid out of distributable reserves, broadly the company's accumulated post-tax profits net of any prior distributions. If you declare a dividend without sufficient retained profits to cover it, the dividend is unlawful under the Companies Act 2006 and HMRC will reclassify the payment as a director's loan, putting you straight back into s455 territory. Always check the latest management accounts before declaring. If your company is loss-making or has used its reserves, the dividend route is closed and you're back to salary, cash repayment, or s455.
One quiet optimisation worth knowing. If the DLA balance is large and you have flexibility on timing, spreading the dividend repayment across two tax years can keep you below the dividend upper-rate threshold in each, reducing the effective tax rate. This is a planning move, not a magic trick: it requires the year-end timing of the company's accounts and the founder's personal tax position to align. Worth raising with an accountant well before the s455 deadline.
A founder runs a profitable Ltd company. Across the accounting year ending 31 March 2026, she pays for various personal expenses on the company card and takes occasional cash withdrawals. By year-end her DLA is £25,000 overdrawn. She didn't plan this; it accumulated.
Why it matters. The founder ends up paying broadly similar tax under both paths, but the second route keeps her cash flow intact. The s455 charge is refundable but punitive in timing. Avoiding it where possible is almost always the right move.
Stylised illustration. Always model your specific scenario with an accountant.
Treating the company card as personal money. The single most common cause of accidental DLA overdrafts. Every personal expense paid from a company card creates a DLA debit unless reimbursed.
Not knowing the DLA balance until year-end. By the time your accountant flags it in February, it's already past most of the windows for clean cleanup. Check it monthly, not annually.
Trying to bed-and-breakfast. The 30-day and 60-day rules close most workarounds. If you've genuinely repaid and have no plan to re-borrow, fine. If you're trying to game the deadline, expect HMRC to notice.
Crossing £10,000 without realising. The BIK rules kick in at £10,000 of overdrawn balance at any point. Easy to cross briefly without thinking, then forget to report on P11D.
Writing off rather than repaying. Write-offs trigger income tax + Class 1 NIC for the director AND make the s455 charge non-refundable. It's the worst combination of outcomes. Use it only as a last resort.
Subordinating the DLA to a debenture without thinking. When you take a bank loan secured by a debenture (see the debentures guide), the lender may ask you to subordinate any DLA the company owes you. In practice, this means money you've put into your own company ranks behind the bank if things go wrong. The bank gets paid back first; you stand in the queue with the unsecured creditors. Most founders sign without realising what they're agreeing to.
The one-line mental model. Every transaction between you and your company is either a salary, a dividend, an expense reimbursement, or a director's loan. If it's none of the first three, it's the fourth. Track it monthly, not annually.
A founder who reviews their DLA balance every month with their bookkeeper, knows whether they're in credit or overdrawn, and clears any overdrawn balance before the 9-month s455 deadline by declaring a dividend or salary out of retained profits, never crosses £10,000 of overdrawn balance without explicit planning, and never tries to bed-and-breakfast their way around the rules.
If grants might fund what you'd otherwise borrow from yourself, see how to apply for a grant or try YourGrantBuddy.com.
The cleanest way to fund growth without DLA juggling is non-dilutive cash. Grants don't need repaying, don't trigger s455, and don't show up in due diligence as a balance sheet item. Use the funding finder to see what's available for your stage and sector.
Try the funding finder →Missing something? Tell us. We're building this in the open and we want to get it right.
This is general information, not financial, tax, or legal advice. Directors' loan account rules involve corporation tax, income tax, NIC, and benefit in kind treatment, all of which interact. The specific outcome depends on your personal tax position, your company's profit position, and the timing of transactions. Always work with a UK-qualified accountant or tax adviser when planning DLA repayments or dealing with an unexpected balance.