Are you running a limited company and occasionally find yourself “borrowing” from your business account for personal use? If so, then this is the post for you.
You might feel like the money in your business is yours to spend, after all you did all the hard work, so you deserve it right?
But here’s the catch: your company is its own legal entity. Borrowing from it without the right process can trigger unexpected tax bills, interest charges, or even scrutiny from HMRC.
Let’s dive into the Director’s Loan Account (DLA) by finding out what it is, how it works, and how understanding it can save you stress (and cash).
What is a DLA?
Think of the DLA as a ledger tracking money that moves between you and your business but outside of salary, dividends, or reimbursed expenses.
- If you lend your own money to the business, it owes you.
- If you take money out (not as salary/dividend) then you owe the business.
In essence it’s part of your company’s books and it therefore needs proper tracking.
Why does compliance matter?
A frequent mistake, especially in growing businesses, is using the company bank account like a personal purse. Dipping in when cash is tight, with no structure or oversight.
Here’s the problem:
If your DLA is overdrawn (i.e., you owe money) at the end of the financial year and if it remains unpaid nine months later, HMRC can:
- Hit your company with a 32.5% corporation tax on that loan
- Treat it as a benefit in kind, meaning you could be taxed personally
- And if they suspect tax avoidance then you might even end up under investigation.
Clearly, it’s not worth the risk!
How to stay in control and compliant
- Pay yourself properly
Use a blend of salary and dividends, strategically planned and based on real profits. - Track every transaction
Whether it’s a short-term loan to yourself or covering business costs with personal funds. Keep everything clear and organised, make use of cloud accounting software. - Avoid regular “dipping in”
A one-off withdrawal is one thing, don’t fall into the trap of doing it habitually without a plan. That’s a compliance headache waiting to happen. - Work with a pro
Work with an accountant who understands your business goals, can help you pay yourself well and keep everything above board.
Final thoughts
As the business grows, feeling in control of finances becomes essential. That means understanding and proactively managing the DLA. You don’t need to become your own accountant (that’s what we are here for!). However, you do need to make informed, empowered choices and that starts with clarity about the rules.
If you need help reviewing your DLA or creating a clearer pay‑yourself plan, then
let’s talk. We specialise in providing straightforward, no-nonsense support for anyone running limited companies. Our services include covering tax planning, profit first, compliance, and much more. To find out more call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.
You can also book a free 20-minute call with Yarka – https://calendly.com/yarka-ssa/20min
