What the DLA is and isn't
The director's loan account (DLA) is the running record of what a company owes its director, and vice versa, that isn't salary, dividends, or reimbursed expenses. Every director of a small UK limited company has one, whether they know it or not. Understanding how it works — and keeping it out of overdraft — prevents most of the tax problems that surprise freelance limited-company owners.
What the DLA is and isn't
The DLA is a bookkeeping account. Everything monetary between director and company that isn't formally salary (via PAYE), dividend (properly declared via meeting/minutes), or reimbursed expenses (with receipts) goes through the DLA. If you personally paid for a business flight without submitting an expense claim, the company owes you — that credits your DLA. If the company paid your personal Netflix subscription, you owe the company — that debits your DLA.
The DLA is not a tax event by itself. It's a ledger. The tax events happen when the balance goes into 'overdrawn' (director owes company) territory.
The two directions it can flow
In credit (company owes director): you can withdraw this at any time without tax consequences — it's just paying back your loan to the company. Useful in the first year of trading when directors often put personal money in to cover setup costs.
In debit / overdrawn (director owes company): subject to BIK if over £10,000 and s455 CT charge if outstanding 9 months after year-end. This is the state to avoid.
Keeping it out of trouble
Set up your bookkeeping so the DLA is visible on your monthly balance sheet — most accounting software (FreeAgent, Xero, QuickBooks) has this as a dedicated ledger. Review it monthly. If it's drifting into overdraft, either: (1) declare a dividend to clear it, (2) reclassify some as salary if you have PAYE headroom, or (3) repay it before the 9-month deadline. The order of preference depends on your tax position.
Worked example
Iman incorporates in April. First month, before the business account is open, she pays £3,000 of setup costs (registration, insurance, website, first laptop) from personal funds. She records these as legitimate business expenses reimbursable by the company — DLA balance is now £3,000 in credit (company owes her £3,000). Six months later, the company reimburses her when cashflow allows. No tax consequences at any stage. If she'd instead paid herself £3,000 as 'salary' without PAYE processing, that would be a mess to unwind at year-end.
Reference table
| Transaction | DLA effect | Tax event |
|---|---|---|
| Director pays £500 business flight personally | +£500 credit | None until reimbursed |
| Company reimburses £500 to director | -£500 (clears credit) | None |
| Company pays £300 for director's personal item | £300 debit | Personal use — expense not allowable |
| Director withdraws £5,000 as 'money owed to me' | -£5,000 credit / new £5,000 debit depending on starting balance | None if in credit; BIK+s455 risk if overdrawn |
| Director's £8,000 DLA overdraft written off | -£8,000 | Treated as dividend or salary — full personal tax |
Managing your DLA cleanly
- Set up a DLA ledger in your accounting software (FreeAgent/Xero/QuickBooks all have this)
- Every non-standard money movement between you and the company runs through the DLA
- Review the DLA balance monthly in the balance sheet
- Reimburse business expenses paid personally within a reasonable window
- Keep the balance in credit or £0 whenever possible
- If overdrawn: plan the clearance (dividend, salary, repayment) before month 9 after year-end
- Document large DLA movements in company minutes
A director's loan is a specific transaction where the company lends the director money (or vice versa). The director's loan account is the running-total ledger that tracks all these transactions net. Multiple director's loans get recorded through the DLA.
Yes — the company can charge interest at or above HMRC's official rate (currently 2.25%). Paying interest at that rate avoids the beneficial-loan BIK. The company pays 20% CT on the interest received; you pay income tax on the interest as it accrues.
It's an asset. The director gets paid back before the liquidation completes, subject to enough company cash to do so. If the company doesn't have the cash, the director becomes an unsecured creditor of the estate.
Your accountant reconciles it at year-end and flags any tax consequences. Day-to-day tracking is on you — accounting software makes this near-automatic. The mistake is treating it as 'the accountant's problem' and only discovering an overdraft at year-end.
Rare. Loans to directors of unrelated companies are heavily regulated under Companies Act 2006 and typically require shareholder approval. Most freelance contexts don't encounter this.
Sources & official references
Related on FreelanceToolkit UK
This guide is general information based on UK rules for the 2025/26 tax year. It is not personal tax or legal advice. For decisions affecting your tax position or legal exposure, consult a qualified accountant or solicitor.