By Hammond & Co
If you run a landscaping or gardening limited company, there’s one accounting concept that causes more confusion — and more unexpected tax problems — than almost anything else: the Director’s Loan Account (DLA).
Many directors only hear about it:
- When their accountant raises a red flag
- When an unexpected tax bill arrives
- Or when HMRC starts asking questions
At Hammond & Co, we help directors understand DLAs in plain English. In this guide, we’ll explain what a DLA is, how it works in practice, why landscaping and gardening businesses are particularly at risk, and — most importantly — how to stay in control.
What Is a Director’s Loan Account?
A Director’s Loan Account records money moving between you and your company that isn’t salary or dividends.
Put simply, it tracks:
- Money you take out of the company personally
- Money you put into the company personally
Think of it as a running tab between you and your business.
When Does a DLA Arise?
A DLA comes into play whenever you:
- Take money out that isn’t salary or dividends
- Pay personal expenses from the business
- Put your own money into the company
For landscaping and gardening directors — often hands-on and busy — this happens more often than you might think.
Credit vs Overdrawn: The Key Difference
Credit DLA:
- You’ve put more money into the company than you’ve taken out
- Low risk, often helpful for smoothing cash flow
- Can be repaid later tax-free
Overdrawn DLA:
- You’ve taken more money than you’re entitled to
- The company is effectively lending you money
- HMRC has very clear rules about this — and overdrawn balances carry tax and compliance risks
Why Landscaping & Gardening Companies Are Especially at Risk
- Irregular Income
Busy months bring cash surpluses, quiet months don’t. Directors often take more during peak season and forget to reduce drawings later, drifting into an overdrawn position.
- VAT Creates a False Sense of Cash
VAT-inclusive payments inflate bank balances. Spending VAT unknowingly can push your DLA into overdrawn territory without realising it.
- High Personal Involvement
Many directors pay for fuel, tools, or materials personally, or blur personal and business finances. Every movement affects the DLA.
Common Transactions That Affect Your DLA
Credit (DLA increases):
- Lending money to the company
- Leaving salary or dividends unpaid
- Paying business expenses personally
Overdrawn (DLA decreases):
- Taking cash or bank transfers
- Paying personal bills from the company
- Taking drawings without declaring dividends
Small, regular transactions can add up faster than most directors expect.
Why an Overdrawn DLA Is a Serious Issue
1. Corporation Tax Charge (Section 455)
If your DLA is overdrawn at year-end and not repaid within nine months, the company can face an additional Corporation Tax charge.
- Paid by the company
- Calculated on the overdrawn balance
- Refundable only when the loan is repaid
2. Personal Tax Implications
Large loans may be treated as benefits in kind, attracting personal tax and reporting obligations.
3. HMRC Scrutiny
Repeated overdrawn DLAs can:
- Trigger interest
- Raise dividend questions
- Lead to compliance reviews, especially if paperwork is missing
“But I Thought I Could Just Take My Own Money?”
A common misunderstanding: yes, it’s your company — but you can’t just take money whenever you want.
Money belongs to the company until it is:
- Paid as salary
- Declared as dividends
- Repaid as a loan you previously made
Anything else goes through the DLA — and must be managed properly.
How DLAs and Dividends Interact
Dividends are often used to:
- Clear overdrawn loan accounts
- Justify drawings taken during the year
But dividends must:
- Be supported by profits
- Be formally declared
- Be documented correctly
Declaring dividends after the fact without checking profits can create more problems than it solves.
The Dangerous “End-of-Year Fix”
Many directors rely on:
“We’ll sort it at the year end.”
This approach is risky because:
- Profits may not be sufficient
- Tax thresholds may already be breached
- Options become limited
- Flexibility disappears once the year is over
How to Keep Your DLA Under Control
1. Know Your Position Regularly
- Check whether your DLA is in credit or overdrawn
- Monitor the approximate balance
- Make it a monthly or quarterly check, not a year-end surprise
2. Plan Director Pay Properly
- Most DLA issues stem from irregular or unplanned drawings
- A structured salary and dividend plan prevents overdrawn positions
3. Separate Personal and Business Spending
- Use separate bank accounts and cards
- Keep personal and business transactions distinct
- Clear separation simplifies control
4. Avoid Using the Company as a Personal Bank
- Short-term cash gaps happen, especially in seasonal trades
- Repeated personal borrowing creates tax exposure and cash flow stress
- Instead, review pay structure and adjust drawings proactively
5. Clear Overdrawn Balances Promptly
- Don’t ignore or hope it disappears
- Options include:
- Repaying the loan personally
- Declaring legal dividends
- Adjusting future pay
The right solution depends on timing and available profits — which is why professional advice matters.
A Real-World Landscaping Scenario
- Busy summer months
- Director draws regularly
- VAT and tax not set aside
At year-end:
- Accounts show profit, but not enough
- Overdrawn DLA
- Unexpected tax charge
- Stress and frustration
With earlier visibility, this is almost always entirely avoidable.
Why Ongoing Advice Makes All the Difference
DLAs rarely become a problem overnight. They creep up through:
- Small, repeated transactions
- Peak periods
- Lack of visibility
Regular check-ins allow:
- Early warnings
- Adjustments during the year
- Peace of mind
This is particularly valuable for landscaping and gardening businesses, where income and cash flow can change quickly.
How Hammond & Co Helps
At Hammond & Co, we help directors:
- Understand their DLA in plain English
- Monitor balances year-round
- Structure pay to avoid overdrawn positions
- Resolve issues before HMRC gets involved
Our focus is prevention first — fixing problems later is usually more costly and stressful.
Final Thoughts
A Director’s Loan Account isn’t something to fear — but it is something to respect.
When managed properly, it’s:
- A useful tracking tool
- A source of flexibility
When ignored, it becomes:
- A tax risk
- A cash flow drain
- A major source of stress
If you’re not 100% sure where your DLA stands, that uncertainty alone is worth addressing.
Ready for Clarity on Your Director’s Loan Account?
At Hammond & Co, we offer a clear, jargon-free explanation of your position — and advice on how to keep it under control. Get in touch for a no-obligation discussion.