A director's loan to your own company: tax and legal points
Before borrowing from any outside lender, some directors ask a fair question: should I just lend my company my own money instead? Putting your own funds in can be quick and cheap, but it is not free of rules. A director's loan has tax and legal consequences in both directions — money you lend to the company, and money the company lends to you. This article gives you the lie of the land. It is not our product, and it is not tax advice; for the detailed rules and current thresholds, use gov.uk and speak to an accountant.
What a director's loan account is
Your director's loan account (DLA) is simply a record of money owed between you and your company that is not salary, dividend or expense repayment. If you put your own cash into the business, the company owes you and the DLA is in credit. If you take money out that is not pay or a dividend, you owe the company and the DLA is overdrawn. Because a limited company is a separate legal person from its director — a point we explain in what is a body corporate — these are real debts between two distinct parties, and they need to be recorded properly in the company's books.
Lending money to your company
Lending your own money in is generally the simpler direction. The company can repay you when cash allows, and you can charge interest if you choose — though interest the company pays you is income you must declare, and the company may need to operate tax on it. Drawing the loan back out later is just repayment of what you are owed, not income, so it is often tidier than taking it as salary or dividend. Keep clear records and ideally a short written note of the terms, even with yourself, so the position is unambiguous.
When the company lends to you: s455 and benefit-in-kind
The rules bite harder the other way. If your DLA is overdrawn — the company has effectively lent you money — and it is not repaid within a set period after the company's year end, the company can face a temporary tax charge under what is commonly called section 455. That charge is repayable to the company once you clear the loan, but it is a real cash cost in the meantime. Separately, if the loan is large and interest-free or below a set rate, it can count as a benefit in kind, creating a personal tax charge for you and a reporting duty for the company. The exact thresholds and rates change, so check the current figures on gov.uk rather than relying on a number you half-remember.
Why this matters when comparing finance
Using your own money avoids external interest and keeps things in the family, which can be attractive for a small, short gap. But it ties up your personal cash, it must be documented, and getting the DLA wrong can create tax charges that outweigh the saving. An external loan keeps your own funds free and the obligation on the company, with costs set out plainly in advance — in our case on your Key Information Sheet (KIS) and Business Loan Agreement. We lend to the company, not to you personally, and we do not take a personal guarantee. That said, separateness has limits: there are narrow situations where a director can be exposed, which we cover in can a director be personally liable for a company loan.
Where to get the detail
This article is orientation, not advice. Director's loan tax — s455, benefit-in-kind, reporting — depends on current thresholds and your specific circumstances, so use the guidance on gov.uk and talk to your accountant before you act. Decide on the facts, recorded properly, not on assumptions.