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What is a director’s loan —
and when does business finance replace it?
A quick way to move money into or out of your company — but with a 9-month clock, a 32.5 % tax charge and a benefit-in-kind risk that catches many directors off-guard. Here is the plain-English version.
Directors routinely move money between themselves and their companies outside of salary and dividends. Every pound that moves is recorded in the director’s loan account (DLA). When that account tips the wrong way, the tax cost can arrive faster than the cash to meet it.
This guide explains what the DLA is, why the repayment clock matters, and the practical point at which external business finance — a bridging loan, a revolving facility or Slice — is the cleaner answer. It is general information, not tax or legal advice; for your own position, always take professional advice.
Creditcorp is the growing name for the Credicorp group. The operating lender — Credicorp Limited — lends to UK limited companies and LLPs, not to sole traders or directors personally. Every CTA on this page routes to credicorp.co.uk, where applications are handled.
What the director’s loan account is
Two directions, one running ledger.
The DLA is simply a running ledger in the company’s books. It records money that has passed between the director and the company outside of declared salary and dividends. Two directions are possible:
- Director lends to the company (DLA in credit) — the company owes the director. Common when a business is young or needs a temporary injection. The director can draw this back at any time, and it is not taxed as income when repaid because it is returning the director’s own money.
- Director borrows from the company (DLA overdrawn) — the director owes the company. This is where the tax exposure sits.
Most directors have a mix of both over a trading year: expenses put through the company, personal draws, and occasional injections. The year-end balance is what matters to HMRC.
The 9-month clock and the Section 455 charge
The tax that catches directors out.
If the DLA is overdrawn at the company’s accounting year-end, the company must clear the balance within 9 months of that year-end (the Corporation Tax filing deadline). If it is not cleared in time, the company pays a Section 455 charge of 32.5 % on the outstanding amount.
The Section 455 charge is not a permanent loss — once the director repays the loan, the company can reclaim it. But the reclaim is deferred by a further 9 months after repayment. In practice, a missed year-end can tie up tens of thousands of pounds for over a year, at a time when the business may already be short of working capital.
Example. The company’s year-end is 31 March. If the DLA is overdrawn on that date, the balance must be cleared by 31 December. Miss the deadline, and the company pays 32.5 % to HMRC in January on whatever was outstanding. If the director repays in February, the company reclaims — but not until November the following year.
The rates and rules can change; this is the position as it has applied in recent years. Always check with your accountant before your year-end.
The benefit-in-kind risk on interest-free loans
Another tax layer when the balance stays open.
If the DLA is overdrawn by more than £10,000 at any point in the tax year and the company charges no interest (or interest below the HMRC official rate), the difference is treated as a benefit in kind. That means:
- The director pays income tax on the notional interest benefit through self-assessment.
- The company pays Class 1A National Insurance on it.
This is separate from the Section 455 charge and can run alongside it. Charging the director interest at or above the HMRC rate avoids the benefit-in-kind, but then the director has taxable interest income and the company has deductible interest expense — a calculation your accountant should model. There is no free lunch; the question is which route costs less.
When business finance is the cleaner answer
Four situations where external lending beats a personal injection.
The company needs more than you can inject
A director’s loan is capped by what the director personally has available. If the business needs £50,000 and the director can spare £15,000, the DLA only gets you a third of the way. Business finance scales with the company’s trading position, not the director’s personal savings.
You do not want the 9-month clock running
A company that borrows externally does not create a DLA at all. The loan sits on the company’s balance sheet as a creditor, not in a director’s loan account. There is no Section 455 clock, no benefit-in-kind calculation, and no personal repayment obligation.
Personal and company finances need to stay separate
Mixing personal and company money through the DLA can complicate accounts, slow audits and create questions if the company is sold or refinanced. External finance keeps the company’s books clean and the director’s personal balance sheet unencumbered.
The working capital need is recurring
If the company regularly needs a cash injection at the same point in its cycle — before a big order, ahead of a season, while waiting for a slow payer — a revolving credit facility is often cheaper and cleaner than repeatedly drawing down and repaying a DLA.
The Credicorp products that replace a director’s loan
Three different shapes of working capital for UK limited companies and LLPs.
Business Bridging Loan
Short-term funding for UK Ltd, LLP & PLC borrowers.
A lump sum of working capital when timing matters — restocking, a supplier deposit, a repair that cannot wait. Repaid over a short, fixed term.
See Business Bridging Loan at credicorp.co.uk →Credicorp Flex
A revolving credit facility for incorporated businesses.
A credit line that flexes with cash flow. Draw what you need, when you need it, and pay interest only on what you actually draw.
See Credicorp Flex at credicorp.co.uk →Credicorp Slice
Split a supplier bill into instalments. Flat fee, no personal guarantee.
We pay your supplier in full today; you repay over a few weeks. A flat fee, set out up front, and never a personal guarantee.
See Credicorp Slice at credicorp.co.uk →All three are lent to the company, not the director. There is no personal guarantee, no charge over a home and no personal credit check on the director. This is body-corporate lending, exempt from consumer credit regulation.
Common questions
What is a director's loan account?
A director's loan account (DLA) is a running record in the company's books of money that has passed between the director and the company outside of salary and dividends. If the director has lent money to the company, the account is in credit (the company owes the director). If the director has drawn out more than they have put in — or taken cash beyond their declared salary and dividends — the account is overdrawn (the director owes the company).
What is the 9-month rule?
If a director's loan account is overdrawn at the company's accounting year-end, the company must repay or write off the loan within 9 months of that year-end. If the balance is not cleared in time, the company pays a 32.5% Section 455 tax charge on the outstanding amount. That charge is repayable once the director repays the loan, but the cash flow hit is immediate and painful.
Does a director's loan cost tax?
It can. If the company lends the director money interest-free (or below the official HMRC rate), the director may face a benefit-in-kind charge on the low-cost loan, which is taxed through self-assessment. The company itself may also face a Class 1A National Insurance charge on that benefit. The 32.5% Section 455 charge (described above) falls on the company if an overdrawn account is not cleared within 9 months.
When is business finance a better answer than a director's loan?
Business finance is usually a cleaner answer when: the company's cash need is larger than the director can personally inject; the director does not want to tie up personal funds in the business; the timing does not suit the 9-month repayment clock; or the working capital need is recurring. External lending keeps company and personal finances properly separate, avoids the s455 risk entirely, and scales with the business rather than the director's personal balance sheet.
Can the company borrow from Credicorp to clear a director's loan?
Credicorp lends to incorporated businesses — UK limited companies and LLPs — for working capital purposes. Whether clearing an overdrawn DLA constitutes a permitted use of the funds is a question for the lender on a case-by-case basis; it is not automatically excluded. Speak to Credicorp directly at credicorp.co.uk to discuss your position.
Ready to explore business finance?
Business bridging loans, revolving credit and Slice — all lent to the company, no director guarantee. Applications are handled at the lender’s own site.