A director's loan account is the running record of money moving between a director and their company that is neither salary, nor dividend, nor an expense repayment. It exists in every owner-managed company whether or not anyone maintains it deliberately, and for most of the year it is bookkeeping. It becomes a tax question at exactly one moment: the company's year end, if the director owes the company money on that date.
What the account actually records
Every movement that is not one of the three named categories lands here. The director paying a company bill from a personal card puts the account in credit; the company paying a personal expense, or the director drawing cash ahead of a dividend that has not been declared, puts it into debit. The balance is a real debt in either direction, owed by the company to the director or by the director to the company, and it is the direction on the last day of the accounting period that HMRC cares about.
Overdrawn at the year end is the only thing that triggers tax
If the director owes the company money at the end of the accounting period, the company reports it on form CT600A with the company tax return. If that balance is still unpaid nine months after the end of the period, the company pays corporation tax at 33.75% of it. This is a charge on the COMPANY, not on the director, and it is payable alongside the company's own corporation tax. It is also temporary: once the loan is permanently repaid, the company can reclaim the tax, though not the interest that ran in the meantime.
In credit is a different and simpler position
Where the company owes the director, there is no corporation tax charge at all. The company may pay interest on the balance if it chooses, which is a deductible expense for the company and taxable income for the director, and the company has to account for income tax on that interest quarterly on form CT61. Many owner-managed companies simply do not pay interest, which is a decision rather than an oversight, and leaves nothing to report.
Why the account is worth maintaining in real time
Nearly every expensive director's loan problem is a bookkeeping problem that was discovered late. A balance found at the year end can sometimes be cleared before the nine-month deadline by a dividend, a bonus or a repayment from personal funds, but only if there is time and, in the case of a dividend, distributable reserves to declare it from. A balance found when the return is being prepared eleven months later has usually already triggered the charge.
Questions people ask about directors loan account
When does a directors loan account become taxable?
When it is overdrawn at the end of the accounting period and still unpaid nine months later. The company then pays corporation tax at 33.75% of the outstanding amount, reclaimable once the loan is permanently repaid.
Is the s455 charge paid by the director or the company?
By the company. It is a corporation tax charge assessed on the company and paid with the company's own corporation tax, which is why it belongs in the company's computation rather than on a personal return.
What if the company owes the director money?
Then there is no corporation tax charge. The company may pay interest on the balance, which is deductible for the company and taxable for the director, with income tax accounted for quarterly on form CT61.