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Director’s Loan Account: What is it?

by Emily Win | Jul 16, 2020 | Better Business

Directors loan account what is it

What is a Director’s Loan Account? 

This is an account that records the transactions that happen between the company it’s director.  These transactions could be either company or non-company related activities.  

A separate director’s loan account (DLA) is required for each director (unless directors are married and agree to have a joint director’s loan account).

Where is the Directors Loan Account reported?

The director’s loan account is reported on the company’s balance sheet and can either be:

  1. A balance owed by the company to the director (i.e. a liability owed by the company)
  2. A balance the director owes to the company (i.e. an asset due to the company and called an overdrawn director’s loan account)

The year-end accounts submitted to Companies House has the total director’s loan account balance disclosed within the notes to the accounts. Additional disclosures are required if it is an overdrawn director’s loan account.

What transactions can go through my director’s loan account?

Money owed to you
  • Monthly salary declared via payroll
    • The balance on the DLA will be the net amount owed to you after all payroll deductions have been taken, as per your payslip.
  • Dividends declared
    • If you are also a shareholder then the amount of each dividend declared will sit on the DLA as an amount payable to you
  • Reimbursement for business costs you paid for personally
    • For example, you buy computer equipment for the company using your own personal bank account.
Money payable by you
  • Payments made out of the company bank accounts/credit cards which do not relate to the business
    • For example, if you used the company bank account to buy a personal laptop.

If my DLA has a balance which is owed to me, how do I receive this?

The benefit of the director’s loan account (if it is not overdrawn) is that it gives you the flexibility to choose when to pay yourself what is owed to you.  This means you can fluctuate your drawings pattern, ensuring you balance the cashflow requirements of the business with your own personal cashflow needs.

What if I take out more from the DLA than is owed to me?

If, at the end of the financial year, you have taken more money out of your DLA than you were owed, this is called an overdrawn Directors Loan Account and you will need to pay the money back.  Watch out for our upcoming blog on the implications of having an overdrawn directors loan account and how it can be resolved.

Directors loan account | Emily Win

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