If you take more money out of a company than you have put in – and it is not salary or dividend – it is classed as a ‘directors’ loan’.
You need to keep track of the money you either borrow from your company or lend to it, within your Director’s Loan Account (DLA). If the company is borrowing more money from its Director(s) than it is lending to it, the account is in credit. However, if the Director(s) borrow more, then the DLA is said to be overdrawn.
There is no legal limit on how much you can borrow from your company. However, you should consider very carefully how much the company can afford to lend you, and how long it can manage without this money.
It is up to the company what the interest on the Director’s Loan is. However, HMRC has an official rate of interest, which for 2025/26 is 3.75%. If a Director pays interest below this rate, the difference is treated as a taxable Benefit in Kind (BIK). No BIK tax charge applies if the total outstanding loan balance is below £10,000 throughout the year.
A Director’s Loan must be repaid within nine months and one day of the company’s year-end, or you will face a heavy tax penalty. Any unpaid balance at that time will be subject to a corporation tax charge (known as S455 tax) of 33.75% (2025/6). If you have taken longer than nine months and one day to repay the loan, and have been charged corporation tax on the unpaid amount, you can claim back this tax nine months after the end of the accounting period in which the debt is cleared.
Note that you have to wait a minimum of 30 days between repaying one loan and taking out another. Some directors try to avoid the corporation tax penalties of late repayment of the loan by paying off one loan just before the nine-month deadline, only to take out a new one. HMRC considers this to be tax avoidance. Even sticking to the ’30-day rule’ is not guaranteed to satisfy HMRC that you are not trying to avoid tax.
Directors can find themselves with a Director’s Loan, through taking too much in dividends, as dividends can only be paid out of the company’s profits. It is essential, therefore, that you are on top of your income and expenses, using a robust bookkeeping package.
We can advise you on the best bookkeeping package for you; and we can also take over your bookkeeping to ensure that you are up to date and compliant. Contact us here.
