Overview
Using a limited company for personal spending can create a Director’s Loan Account (DLA), which may result in a debt owed back to the company and potentially significant tax consequences if it is not managed correctly. An overdrawn DLA that remains outstanding for more than nine months after the end of the accounting period can trigger a Section 455 Corporation Tax charge, while using dividends to clear the balance may create additional personal tax liabilities. The £10,000 beneficial loan threshold is not a personal spending allowance, and directors should ensure that personal and company finances are kept separate, bookkeeping is kept up to date, and DLA balances are reviewed regularly to avoid unexpected tax charges.
Content Specification
As of 17 August 2026, the S455 Corporation Tax charge on outstanding director’s loan account (DLA) loans is 35.75%, where the loan remains outstanding more than nine months after the end of the company’s accounting period. This rate has increased from 33.75% from 6 April 2026, as the S455 rate is linked to the dividend upper rate. For beneficial loans, the £10,000 threshold continues to apply, above which HMRC benefit-in-kind (BIK) reporting may be required. The official rate of interest for 2025/26 is 2.25% per annum. Corporation Tax remains 25% for companies with profits above £250,000, with the 19% small profits rate generally applying where profits are below £50,000. Dividend tax rates have also increased from 6 April 2026: the ordinary/basic rate is now 10.75%, the higher/upper rate is 35.75%, and the additional rate remains 39.35%.
Key Points To Remember:
Personal spending through a limited company can create a Director’s Loan Account (DLA), resulting in a debt owed by the director to the company.
If an overdrawn DLA is not repaid within 9 months and 1 day of the end of the accounting period, the company may become liable for a Section 455 Corporation Tax charge. The rate is currently 35.75%.
Repaying an overdrawn DLA through a dividend may create an additional personal dividend tax liability, depending on the individual’s circumstances.
The £10,000 beneficial loan threshold is not a tax-free spending allowance. It relates to when benefit-in-kind reporting and taxation may apply.
Accurate bookkeeping and regular reviews of the DLA are essential for limited company directors to identify and address balances before additional tax charges arise.
Mixing personal and company finances can lead to unexpected tax liabilities and should be avoided wherever possible.
Frequently Asked Questions
What is a Director's Loan Account?
A Director's Loan Account records money moving between a director and their limited company that is not salary, dividends, reimbursement of genuine business expenses or repayment of money the company already owes the director. If you take company money personally, it may create an overdrawn DLA.
Can I use my company card for personal expenses?
A personal purchase made on the company card does not automatically become a company expense. It will normally need to be identified and accounted for correctly, often by debiting it to your DLA unless it forms part of properly treated remuneration or another valid category.
Can a dividend clear my overdrawn DLA?
Potentially, where you are a shareholder and the company has sufficient distributable profits. The dividend must be properly declared and documented. It is still dividend income for you and can create additional personal dividend tax, even where it is credited against money already spent.
What happens if I leave an overdrawn DLA outstanding?
It can create further tax complications. Where the detailed conditions apply and a shareholder-director's loan remains outstanding more than nine months after the end of the relevant Corporation Tax accounting period, the company may face an additional Corporation Tax charge. Benefit-in-kind rules may also need consideration for certain loans.
Is there a £10,000 DLA limit?
Not as a general permission to take £10,000 personally without consequences. HMRC states that some beneficial loans with a combined outstanding value below £10,000 throughout the whole tax year may be exempt from reporting and tax/National Insurance requirements. The relevant conditions and the treatment of the underlying transactions still matter.
How can I avoid a Director's Loan Account problem?
Keep business and personal spending separate, use company cards only for genuine company expenditure, keep bookkeeping up to date and review your DLA regularly. Ask for advice before making a payment when you are unsure how it should be treated.