Limited Companies & Directors
Director’s Loan Account Explained: What Happens When You Transfer £20,000 From the Company?
If you take money from your company and it is not salary, a lawful dividend, an expense repayment or repayment of money the company owes you, it can create an overdrawn director’s loan account. If a relevant shareholder/director loan remains outstanding more than nine months after the accounting period, a company tax charge can arise. For relevant loans from 6 April 2026, the Section 455 rate is 35.75%.
Imagine this bank transfer
Your company has £70,000 in the bank. You transfer £20,000 to your personal account because you need money for a house deposit.
That £20,000 is not automatically a dividend because you are a shareholder. It is not automatically salary because you are a director. The accounting and tax treatment depends on what the payment legally represents.
Four possible labels for the same-looking bank transfer
| What the £20,000 represents | Typical treatment |
|---|---|
| Salary / bonus | Payroll, PAYE/NIC and company remuneration rules. |
| Dividend | Needs sufficient distributable profit and proper dividend decision/documentation; shareholder may pay dividend tax. |
| Repayment of money you previously lent the company | Normally reduces the amount the company owes you. |
| Director’s loan | You owe money back to the company; separate company and personal tax rules can arise. |
When does the company tax problem arise?
For a close company loan to a participator, a Section 455 company tax charge can arise if the relevant overdrawn loan remains outstanding more than nine months after the end of the Corporation Tax accounting period.
For loans made on or after 6 April 2026, the current Section 455 rate is 35.75%.
Simple £20,000 illustration
This is a company tax charge connected with the loan. It is not the same as permanently taxing the £20,000 as salary or dividend. Relief can become available after a qualifying repayment/release, but the timing rules matter and the company does not reclaim interest paid on the Section 455 charge.
The £10,000 personal benefit threshold
If the amount owed by the director exceeds £10,000 at any point and insufficient interest is paid, a beneficial-loan benefit can arise, bringing benefit reporting and personal/employer tax consequences into the picture.
“I will repay it for one day before the deadline”
That is not a safe planning strategy. Anti-avoidance rules can apply where loans are repaid and quickly re-borrowed, including specific rules around repayments linked to new borrowing. The substance of what happened matters.
Can a dividend clear the loan?
A later lawful dividend can be credited against an overdrawn director’s loan where the shareholder is entitled to it and sufficient distributable profits exist. But the dividend must be a genuine dividend at the correct date with the correct paperwork. You cannot simply relabel an old withdrawal as a dividend because the year-end accounts reveal a loan problem.
What people commonly get wrong
The company is a separate legal entity. Its bank balance is not the director’s personal bank balance.
Large drawings can create problems long before the accounts are prepared.
Quick re-borrowing and arrangements to re-borrow can be caught by anti-avoidance rules.
Dividends, expenses and payroll need to be posted correctly so the DLA balance itself is reliable.
The best director’s-loan planning is usually boring: reconcile it every month, agree what regular money taken from the company represents, document dividends when they happen and avoid using the company bank account as a personal overdraft. Once the balance becomes large, the options become more expensive and time-sensitive.
Need help with this?
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Official sources
Reviewed by
Sandip Vadher, PhD FCCA
Founder of SV&Co Accountancy. Fellow Chartered Certified Accountant with more than 20 years of finance and accountancy experience.
Last reviewed: 16 August 2026