A director's loan account is the record of money a director has lent to or borrowed from their company, other than salary, dividends and expense repayments. If the director owes the company money at the year end, extra tax can be due.
In credit or overdrawn
When the director has put more into the company than they have taken out, the director’s loan account is in credit: the company owes the director, and it appears under creditors. When the director has taken out more, the account is overdrawn and appears under debtors.
Tax on an overdrawn account
Most owner-managed companies are close companies. If a close company’s loan to a director or shareholder is still outstanding 9 months and 1 day after the end of the accounting period, the company pays tax under section 455 on the balance:
- 35.75% for loans made on or after 6 April 2026;
- 33.75% for loans made between 6 April 2022 and 5 April 2026.
The loan is reported on the CT600A. HMRC repays the tax after the loan is repaid, but not until 9 months and 1 day after the end of the period in which it was repaid.
Heads up — an interest-free or low-interest loan of more than £10,000 is also a taxable benefit for the director.
Read more: CT600A: loans to participators and The loans to directors note.