Directors Loan Accounts

T J Registered Posts: 26 Regular contributor ⭐
I've just started doing Ltd companies and just need someone to refresh my brain about how to use directors loan accounts, when you decide what dividends to pay etc.

I've been doing sole traders for ages and my first ltd co is making my brain hurt!!!



  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
    Owch, yes I remember it well!!

    Ok, there's a lot here but the basics are:
    You can't just clear a DLA with a Divi any more, you have to do the correct Div paperwork as you go along.
    If the DLA has a credit balance then director can draw down that balance tax free.
    If DLA is overdrawn then divs should be prepared (from management accounts to state enough profit (dont forget depn and CT) to take div.
    If DLA overdrawn, and over £5k then benenficial loan rules apply. If DLA overdrawn 9 months after year end and not repaid S419 tax applies.

    Lots of reading to do, sorry!
    Good luck :)
  • Poodle
    Poodle Registered Posts: 711 Epic contributor 🐘
    Hi TJ

    In addition to what faerie9 says, I read a little article on this a while back. Basically personal expenses being charged to a DLA are now being viewed as advance payments of salary, so the company and the director could end up paying Class 1 NI on the amounts at the time taken and credited to the loan account. It's no longer good enough to just allow a director to draw down and then to repay th DLA by declaring an annual dividend or bonus.

    If it is the intention of such payments that they are always to be repaid by the declaration of a dividend or by the paying in of personal funds then the overdrawn balance can't be earnings and are not subject to Class 1 NI.

    Get the company to minute it's policy regarding overdrawn DLA's: that those accounts must be cleared by a dividend or personal funds introduced by a director, and are not intended to be advances on directors' salary due.

  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
    You may also wish to write off the loan rather than pay a bonus or have the director repay in some other way.

    Loan write-offs are treated as a distribution in the hands of the shareholder/director (e.g. as a divi).

    They are treated as earnings for NIC purposes - bit of a stickler that one but..'s the good bit - they are an allowable deduction for corporation tax purposes as a non-trading loan deficit.

    Effectively it is a bonus taxable on a higher rate shareholder/director at 25% rather than 40%.

    Food for thought..!
  • marine
    marine Registered Posts: 31 Regular contributor ⭐
    hi all

    I have just completed a small limited company accounts, where at the year end his overdrawn DLA was at £16000. Plenty of profit in the company to declare a dividend (£27000 after tax) but was just wondering about paperwork.

    Should i go back and produce a dividend per month for the amounts withdrawn? Are there any implications for me doing this?

    Aswell does anyone have a dividend template i could use please?

    Thanks in advance.

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