A director's loan account is the record of everything a UK company director (or close family) takes from the company that isn't salary, dividends or an expense repayment, and everything they pay in. If the account is overdrawn and not repaid within 9 months of the end of the company's accounting period, the company pays Corporation Tax at 33.75% of what's still owed, as of October 2026, which it can reclaim once the loan is repaid.
If you run a limited company, it's easy to treat the company account as your own. The director's loan account is how HMRC sees it instead: every withdrawal that isn't pay or a dividend is a loan, and loans have tax rules on both sides. Everything here comes from the GOV.UK guide to director's loans.
What counts as a director's loan
GOV.UK defines it as funds you (or close family members) get from your company that aren't a salary, a dividend, an expense repayment, or a return of what you previously paid in or lent. You must keep a record of every amount borrowed from or paid into the company, and at the end of the financial year any balance owed either way goes on the balance sheet in the annual accounts.
| Account position | What it means | Who has tax to think about |
|---|---|---|
| Overdrawn | You owe the company | The company, and you if it's over £10,000 or the interest is low |
| In credit | The company owes you | Only you, if you charge interest |
If you owe the company: the 9-month rule
The key date is 9 months after the end of the company's Corporation Tax accounting period. Your obligations depend on what happens by then:
| What happens to the loan | Company's responsibility | Your responsibility |
|---|---|---|
| Repaid within 9 months | Show the amount owed at the period end on form CT600A | None, unless one of the rules below applies |
| Not repaid within 9 months | CT600A, plus Corporation Tax at 33.75% of the amount outstanding (32.5% for loans made before 6 April 2022), with interest added until paid | None |
| Written off or released, including in liquidation | Deduct Class 1 National Insurance through payroll | Pay Income Tax on it through Self Assessment |
The tax is reclaimable once you permanently repay the loan, but the interest charged on it isn't. That makes the 9-month deadline the one that matters: repay in time and the charge never arises.
The bed-and-breakfasting rules
Repaying just before the deadline and borrowing again straight after doesn't get around it. GOV.UK sets out two anti-avoidance rules, and both still apply even when you repaid within 9 months:
- If the loan was more than £5,000 and you took another loan of £5,000 or more up to 30 days before or after repaying it, the company pays Corporation Tax at 33.75% of the original loan (32.5% if made before 6 April 2022).
- If the loan was more than £15,000 and you arranged another loan when you repaid it, the same charge applies.
Loans over £10,000 and cheap interest
If you're a shareholder and a director and you owe the company more than £10,000 at any time in the year (£5,000 in 2013 to 2014), the company must treat the loan as a benefit in kind and deduct Class 1 National Insurance. You report it on your Self Assessment return and may pay tax at the official rate of interest. If you paid interest below the official rate, the discounted interest is a benefit in kind, the company records the interest you did pay as income, and you report the difference on Self Assessment.
Benefits in kind like this are normally reported to HMRC on the company's P11D for the year.
Keeping the account straight during the year
- Record every withdrawal that isn't payroll, a declared dividend or a receipted expense, and every amount you pay back in, with the date.
- Remember close family members count: their withdrawals go through the same account.
- Check the running balance before the year end and again before the 9-month deadline, not just when the accountant asks.
- If the balance is heading over £10,000, decide early whether to repay, declare a dividend or accept the benefit in kind.
Reclaiming the Corporation Tax
- Wait until the relief is due: 9 months and 1 day after the end of the accounting period in which the loan was repaid, written off or released. HMRC won't repay before then.
- Within 2 years of the end of the period when the loan was taken out, claim on form CT600A with that period's Company Tax Return, or amend the return online.
- Use form L2P instead if your return is for a different period from the one the loan was taken out in, or you're amending in writing.
- After 2 years or more, fill in form L2P and send it with your latest Company Tax Return or separately.
- Claim within 4 years (6 years if the loan was repaid on or before 31 March 2010).
If you lend the company funds
The company doesn't pay Corporation Tax on what you lend it. If you charge interest, it's a business expense for the company and personal income for you, which you report on Self Assessment. The company pays you the interest minus Income Tax at the basic rate of 20%, and reports and pays that tax every quarter on form CT61.
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Taking dividends instead of loans has its own rules; see our guide to the dividend allowance before deciding which route suits you.
The verdict
Treat the director's loan account like a credit card with a hard deadline. Keep it reconciled monthly, clear any overdrawn balance within 9 months of the year end, don't re-borrow straight after repaying, and watch the £10,000 line. Most of the tax here is avoidable if you just know the dates.
Frequently asked questions
What is a director's loan account?
The record of everything a director takes from or pays into their company that isn't salary, dividends or an expense repayment.
What happens if a director's loan isn't repaid in 9 months?
The company pays Corporation Tax at 33.75% of the outstanding amount (32.5% for loans before 6 April 2022), reclaimable once the loan is repaid.
Is a director's loan over £10,000 a benefit in kind?
Yes, if you're a shareholder and director and owe more than £10,000 at any time in the year.
Can I lend my company funds tax-free?
The company pays no Corporation Tax on the loan itself. Any interest you charge is personal income, paid with basic rate tax of 20% deducted.
