Director loan accounts: tax and practical rules

A director's loan account (DLA) is the company's running record of transactions with a director. It can show money owed by the director (debit) or money owed by the company (credit); non-cash postings can also change it. A closing balance alone does not reveal the dates, legal character or tax treatment of every movement.

This guide is a UK close-company owner-director/participator orientation, not a computation or accounting opinion. It separates company-level Section 455, employment-related beneficial-loan tax and NIC, repayment relief, and release/write-off. Each has its own facts and time axis. The retired broad DLA calculator is not available; Obnexo's Section 455 tool covers only a supported single-loan case.

A debit balance means the director owes the company. It can arise from cash withdrawals or company payment of personal costs, but the underlying transaction must be classified before tax is assessed. A credit balance means the company owes the director, for example after a genuine loan from the director or a valid expense reimbursement. HMRC's loan-account guidance records both cash and non-cash entries.

A running account may swing between debit and credit. Preserve transaction dates, amounts, descriptions, authorisations and the daily or period-end balances needed for each rule. Do not automatically net a separate company debt to the director against an overdrawn loan: HMRC's treatment depends on whether the records represent one genuine running account or separate obligations.

Section 455 can apply when a close company makes a loan or advance to an individual participator or associate. The company reports a charge on the relevant loan, at the rate applicable to the advance date; the charge is not itself a dividend or immediate personal Income Tax on the director. HMRC's current Company Taxation Manual, rather than a remembered historic rate, is the rate source.

The ordinary company payment date is nine months and one day after the accounting-period end. A qualifying repayment, release or write-off within nine months can mean the company need not pay the charge; a later event can produce Section 458 relief only when that relief becomes due. The loan history and the CT600A matter. Use the dedicated Section 455 guide for the detailed supported rule, and its calculator only for one qualifying loan with genuine repayments in its stated window.

An interest-free or below-official-rate employment-related loan can create a benefit for the director, even while a Section 455 company charge is relevant. The small-loans exemption depends on the aggregate outstanding beneficial-loan balance staying at or below £10,000 throughout the tax year; other exemptions and the actual terms also matter. An overdrawn DLA does not automatically create a taxable benefit.

HMRC normally uses an averaging method to value a taxable beneficial loan, with a precise daily method available in specified circumstances. The official interest rate is time-sensitive, so verify the applicable rate rather than copying an old example. Non-exempt beneficial loans are reported on P11D and generally bring employer Class 1A NIC on the benefit. The Section 455 calculator does not value or report this benefit.

A genuine repayment changes what is outstanding, but it does not always produce an immediate refund of Section 455 already paid. If the event occurs more than nine months after the original accounting period, HMRC defers Section 458 relief until the due date for the accounting period in which the repayment, release or write-off happens. The company must make the appropriate claim; HMRC explains CT600A and separate-claim routes.

A repayment followed by another advance is not automatically relief for the old debt. The statutory 30-day matching rule can match qualifying repayments and new advances of £5,000 or more, leaving the original loan outstanding for Section 455 purposes; arrangements and repeated transactions can require wider review. Do not enter an apparent repayment into the single-loan calculator if its genuineness or matching is in doubt.

Writing off or releasing a close-company participator loan may allow the company Section 458 relief, but it can also create Income Tax for the borrower under the separate released-loan rules. Where the borrower is an employee, Class 1 NIC can arise; HMRC's employer guidance distinguishes this from Class 1A NIC on a beneficial-loan benefit. A write-off cannot be treated as a tax-free way to clear a DLA.

Check the decision and accounting evidence, the capacity in which the individual received the loan, the timing of company relief and the appropriate reporting. This guide does not calculate the personal tax, NIC or any company deduction from a write-off. The bounded Section 455 tool excludes write-offs and releases.

When the company genuinely owes the director, repayment of that creditor balance is not a Section 455 advance to the director. Interest charged by the director is a different transaction: HMRC says it is personal income for the director and may require company deduction and CT61 reporting. Do not infer an interest amount or tax treatment from the credit balance alone.

A salary, dividend or business-expense reimbursement affects the ledger only if the underlying item is valid and recorded at the correct time. Salary can require PAYE when paid; a dividend needs distributable profits and proper declaration. A year-end label or journal entry does not automatically convert earlier withdrawals into a lawful dividend or clear an earlier beneficial-loan period.

Multiple advances or repayments, a balance that crosses zero, separate directors or connected people, write-offs, reborrowing, disputed dividend validity and insolvency can change the analysis. Do not use the Section 455 calculator as a universal DLA tax answer. Reconcile the chronology and use HMRC records and professional judgement for each separate mechanism.

This page does not cover non-UK cases, complex groups or trusts, specialist anti-avoidance, employment-status disputes, contested distributions, insolvency advice or full remuneration planning. It is a map of the questions to check, not a determination that a particular posting is legally effective.