By Hammond & Co
Director’s Loan Accounts (DLAs) are one of the most misunderstood aspects of running a property limited company.
Yet they are also one of the most common reasons property directors end up with:
- Unexpected tax bills
- HMRC correspondence
- Cashflow pressure
- Sleepless nights
The frustrating part? Most directors haven’t done anything reckless. They simply weren’t shown how DLAs work — or how quickly they can shift from helpful to risky.
This guide explains:
- What a director’s loan account really is
- Why property companies use them so often
- When they’re perfectly fine
- When they become dangerous
- How to stay in control without panic
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 expenses
Think of it as a running balance answering one simple question:
Does the company owe you money, or do you owe the company?
- You put personal money into the company → the company owes you
- You take money out that isn’t salary or dividends → you owe the company
Simple concept. The problem is how easily it can be overlooked.
Why Director’s Loan Accounts Are So Common in Property Companies
Property companies rely on DLAs more than many other businesses. Directors often:
- Fund deposits personally
- Pay solicitors, surveyors, or refurbishment costs upfront
- Cover cash shortfalls temporarily
- Refinance and repay themselves later
In the early stages, DLAs are usually in credit (the company owes the director), which is normal and often tax-efficient.
Trouble starts when that balance quietly flips the other way.
The Turning Point: When the Director Owes the Company
A director’s loan becomes a risk when it’s overdrawn. This can happen if:
- You take money that isn’t salary or dividends
- Dividends are declared without sufficient profit
- Personal expenses are paid through the company
- Cash is withdrawn “temporarily” and not tracked
Many directors don’t realise this has happened because:
- There’s money in the bank
- No one flagged it
- Accounts aren’t reviewed until year-end
By the time it’s noticed, the balance can already be significant.
Why Overdrawn Director’s Loans Are a Problem
An overdrawn DLA isn’t just an accounting issue — it has real tax consequences.
1. Section 455 Tax
If a director owes the company money 9 months after the year-end, the company may have to pay Section 455 tax:
- Temporary tax charge
- Currently 33.75% of the loan balance
- Paid by the company to HMRC
- Reclaimable later, but often years away
Immediate cash pressure is the real issue.
2. Benefit-in-Kind Charges
If a loan is:
- Over £10,000 at any point
- Interest isn’t charged
HMRC may treat it as a benefit-in-kind, triggering:
- Personal tax
- Extra reporting
- More admin and complexity
Often this comes as a surprise.
3. Repayment Pressure at the Worst Time
Once flagged, overdrawn DLAs may need to be:
- Cleared
- Reclassified
- Repaid quickly
And usually this coincides with:
- Corporation tax bills
- Personal tax bills
- Mortgage payments
- Refinancing discussions
Cash stress compounds fast.
Why Property Directors Get Caught Out
Property companies are particularly exposed because:
- Profits don’t equal cash (see Blog 2)
- Money moves irregularly
- Dividends are often taken based on bank balances
- Capital repayments drain cash invisibly
A director can feel “comfortable” for months — until one review reveals a loan problem quietly building in the background.
The Most Common DLA Mistakes We See
- “I’ll Sort It at Year End” — by then, the damage is done.
- “It’s Only Temporary” — temporary withdrawals often become permanent.
- “The Company Made a Profit” — profit does not automatically allow withdrawals.
- “No One Told Me” — unfortunately, very common.
These don’t make you irresponsible — they make you unsupported.
When Director’s Loan Accounts Are Absolutely Fine
DLAs are not inherently bad. They are perfectly fine when:
- In credit
- Reviewed regularly
- Withdrawals are planned
- Dividends are properly declared
- Tax implications are understood
Successful property companies often use DLAs strategically:
- To fund growth
- To manage timing differences
- To extract funds tax-efficiently
The difference is control and visibility.
Why Annual Accounts Don’t Protect You
Annual accounts show the loan balance after the year has finished.
They do not:
- Warn you mid-year
- Prevent poor decisions
- Stop tax charges
- Help plan repayments
By the time the issue appears in the accounts, it may already be too late to avoid consequences.
How Property Directors Stay Safe with DLAs
The safest directors do four things consistently:
- Regular Reviews – check loan balances during the year, not just at year-end.
- Planned Withdrawals – money is taken intentionally, not casually.
- Dividend Checks – dividends declared only after confirming profits and cash.
- Clear Advice – understand why something is allowed, not just that it happened.
It’s not about complexity — it’s about clarity.
DLAs and Mortgages: The Overlooked Link
Mortgage lenders increasingly review:
- Accounts
- Director withdrawals
- Company stability
Uncontrolled DLAs can raise questions, reduce confidence, and complicate refinancing.
This is rarely discussed — but it’s increasingly relevant.
The Emotional Cost of Getting This Wrong
Beyond tax and cash, unmanaged DLAs often cause:
- Constant low-level anxiety
- Avoidance of financial conversations
- Loss of confidence in the numbers
- A feeling that “something’s wrong”
This stress isn’t necessary — and it’s avoidable.
Final Thought: DLAs Aren’t Dangerous — Silence Is
A director’s loan account is just a tool.
In the hands of an informed, supported director, it works well.
Unchecked, it becomes a problem that arrives without warning.
If you’re unsure where your loan account stands, that uncertainty alone is a signal, not a failure.
Clarity always beats assumptions.