By Hammond & Co
Most gym owners don’t set out to create a director’s loan issue.
It rarely starts with a big decision — it usually starts small.
You pay for something personally.
You transfer money out “temporarily.”
You plan to sort it later.
Then months pass.
Suddenly your accountant mentions a director’s loan balance — and the tone of the conversation changes.
This guide explains director’s loan accounts (DLAs): what they are, when they’re harmless, when they become risky, and why gym businesses are particularly exposed.
If you’ve ever:
- Taken money out without thinking about how it was labelled
- Used the business card for personal spending
- Topped the gym up with your own funds
- Been surprised by a tax bill linked to drawings
This is for you.
What Is a Director’s Loan Account? (In Plain English)
A director’s loan account tracks money moving between you and your company that isn’t:
- Salary
- Dividends
- Reimbursement of legitimate business expenses
Think of it as a running tab between you and the business.
- If you put money into the company → the company owes you
- If you take money out without declaring it → you owe the company
Simple in theory. Risky in practice.
Why Director’s Loans Happen So Often in Gyms
Fitness businesses are particularly prone to DLAs for a few reasons.
1. Money Moves Frequently
Gyms deal with constant transactions — memberships, subscriptions, suppliers, refunds, equipment payments.
It becomes easy to think:
“I’ll just move this now and sort it later.”
2. Directors Are Hands-On
Gym owners are often deeply involved in day-to-day operations. They may:
- Pay suppliers personally
- Cover shortfalls
- Use the business card out of convenience
Without clear systems, personal and business finances blur quickly.
3. Profit and Cash Don’t Always Align
As we often explain to gym owners, a business can be profitable yet still feel cash-tight.
That mismatch can lead to:
- Ad-hoc withdrawals
- Temporary personal support
- Unplanned transfers
All of which quietly build up in the DLA.
When a Director’s Loan Account Is Absolutely Fine
Director’s loan accounts are not inherently bad. In fact, they are perfectly normal when managed properly.
They are generally fine when they are:
- Short-term
- Closely monitored
- Cleared promptly
- Supported by genuine profits
Examples include:
- Covering an urgent repair personally
- Temporarily supporting cashflow
- Bridging a short timing gap
Handled correctly, there’s no issue.
Problems arise when they’re ignored.
When Director’s Loans Become Dangerous
A director’s loan becomes a concern when certain warning signs appear:
The balance is overdrawn
You owe the company money — and it stays that way.
It continues past the year-end
If the loan isn’t repaid within the required timeframe after the year-end, additional tax charges can apply.
It replaces proper director pay
Regularly withdrawing money without declaring salary or dividends attracts attention.
You don’t understand the balance
This is the biggest red flag of all. Lack of visibility leads to poor decisions.
The Tax Consequences Many Gym Owners Don’t See Coming
When a DLA goes wrong, the consequences can include:
Extra Tax for the Company
The company may face additional Corporation Tax-related charges linked to the loan balance.
Personal Tax Exposure
HMRC may treat the loan as:
- Income
- Or a benefit in kind
Resulting in unexpected personal tax bills.
Increased HMRC Scrutiny
Director loan accounts are a common trigger for compliance checks — particularly in growing or cash-intensive businesses.
The “We’ll Clear It With Dividends Later” Trap
One of the most common assumptions we hear is:
“We’ll just vote dividends at the year-end and clear it.”
But dividends:
- Must be supported by actual profits
- Cannot simply be backdated without care
- Must be properly declared and documented
If profits aren’t available, the loan can’t be cleared — and the problem remains.
Why Director’s Loans Are Often a Symptom — Not the Root Cause
In our experience, DLAs usually point to wider structural issues such as:
- Poor director pay planning
- Lack of management accounts
- No tax forecasting
- Reactive financial decisions
The loan itself isn’t the core problem.
It’s the warning light on the dashboard.
How to Keep Director’s Loans Under Control
Well-run gyms tend to follow a few consistent habits:
Clear Pay Structures
Salary and dividends are planned, not guessed.
Regular Financial Reviews
Monthly or quarterly check-ins prevent balances drifting unnoticed.
Separation of Finances
Personal spending stays personal. Business spending stays business.
Proper Expense Claims
Directors reclaim legitimate costs rather than casually withdrawing cash.
What to Do If You Already Have a Director’s Loan Balance
First — don’t panic.
Most DLA issues are manageable when identified early.
Typical steps include:
- Understanding the true balance
- Reviewing available profits
- Creating a repayment or clearance plan
- Adjusting future director pay
The worst approach is ignoring it and hoping it resolves itself.
Why Gyms Need Extra Discipline Here
Gym owners are often:
- Busy
- Operationally focused
- Passion-driven
Financial administration naturally slips down the priority list.
But director’s loan balances don’t fix themselves — they grow quietly until they become unavoidable.
The Emotional Cost of Director’s Loan Problems
Beyond the tax implications, unmanaged DLAs create:
- Stress
- Uncertainty
- Hesitation around growth
- Anxiety when HMRC correspondence arrives
We regularly see gym owners lose confidence in their numbers — even when the business itself is performing well.
That loss of confidence is avoidable with structure and visibility.
Final Thought: Director’s Loans Should Be Boring
The healthiest director’s loan accounts are:
- Small
- Short-term
- Clearly understood
- Rarely discussed
If your DLA feels confusing, worrying, or constantly raised by your accountant, it’s time to address it — not because you’ve done something wrong, but because the business has outgrown “winging it.”
With the right systems and guidance, director’s loans become routine bookkeeping — not a source of stress.