If you run a landscaping or gardening limited company, there’s one accounting term 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 a tax bill appears unexpectedly
- Or when HMRC start asking questions
In this blog, we’ll break down what a Director’s Loan Account is, how it works in practice, why landscaping and gardening businesses are particularly at risk, and — most importantly — how to stay in control and avoid costly mistakes.
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.
In simple terms, 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 Director’s Loan Account Arise?
A DLA comes into play when you:
- Take money out that isn’t salary
- Take money out that isn’t dividends
- Pay personal expenses from the business
- Put your own money into the business
For landscaping and gardening directors — who are often hands-on and busy — this happens more often than you might think.
Credit vs Overdrawn: The Key Difference
A Credit Director’s Loan Account
This means:
- You’ve put more money into the company than you’ve taken out
This is generally low risk and often helpful:
- You can repay yourself later tax-free
- It can support cash flow during quieter months
An Overdrawn Director’s Loan Account
This means:
- You’ve taken more money out than you’re entitled to
This is where problems start.
An overdrawn DLA is effectively:
The company lending you money
And HMRC have very clear rules about this.
Why Landscaping & Gardening Companies Are Especially at Risk
1. Irregular Income
Busy months create cash surpluses. Quiet months don’t.
Directors often:
- Take more money during peak season
- Forget to reduce drawings later
- Drift into an overdrawn position
2. VAT Creates a False Sense of Cash
VAT-inclusive payments inflate bank balances.
Directors may:
- Spend VAT unknowingly
- Draw more money than profits allow
- End up overdrawn without realising
3. High Personal Involvement
Landscaping directors often:
- Pay for fuel, tools, or materials personally
- Use business cards for personal spending
- Blur personal and business finances
Each of these movements affects the DLA.
Common Transactions That Affect Your DLA
Your Director’s Loan Account increases or decreases when:
It goes UP (credit):
- You lend money to the company
- You leave salary or dividends unpaid
- You pay business expenses personally
It goes DOWN (overdrawn):
- You take cash or bank transfers
- You pay personal bills from the company
- You take drawings without declaring dividends
Many directors are shocked to learn how quickly small, regular transactions add up.
Why an Overdrawn DLA Is a Serious Issue
An overdrawn Director’s Loan Account is not just an accounting technicality — it has real tax consequences.
1. Corporation Tax Charge (Section 455)
If your DLA is overdrawn at the company year end and not repaid within a set period, the company can face an additional Corporation Tax charge.
This tax:
- Is paid by the company
- Is charged on the overdrawn balance
- Is refundable — but only once the loan is repaid
This can tie up cash for years.
2. Personal Tax Implications
If the loan exceeds a certain amount, it may be treated as:
- A benefit in kind
- Subject to personal tax
- Subject to additional reporting
This often comes as an unpleasant surprise.
3. HMRC Scrutiny
Consistently overdrawn DLAs can:
- Trigger HMRC interest
- Raise questions about dividends
- Lead to compliance reviews
Especially where paperwork is missing.
“But I Thought I Could Just Take My Own Money?”
This is one of the most common misunderstandings.
Yes — it’s your company.
No — 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 Director’s Loan Account — and must be managed properly.
How Director’s Loan Accounts 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 further problems rather than solve them.
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
Once the year is over, flexibility disappears.
How to Keep Your Director’s Loan Account Under Control
1. Know Your Position Regularly
You should know:
- Whether your DLA is in credit or overdrawn
- Roughly how much by
This shouldn’t be a once-a-year surprise.
2. Plan Director Pay Properly
Most DLA issues stem from:
- Poor pay planning
- Irregular drawings
- No link to profits
A structured salary and dividend plan prevents most problems before they start.
3. Separate Personal and Business Spending
This sounds basic — but it’s critical.
Use:
- Separate bank accounts
- Separate cards
- Clear expense policies
The cleaner the separation, the easier the control.
4. Avoid Using the Company as a Personal Bank
Short-term cash gaps happen — especially in seasonal trades.
But repeated personal borrowing from the company:
- Creates tax exposure
- Signals cash flow issues
- Causes stress later
If cash is tight personally, it’s better to:
- Review pay structure
- Adjust drawings
- Plan ahead
5. Clear Overdrawn Balances Promptly
If your DLA is already overdrawn:
- Don’t ignore it
- Don’t hope it disappears
Options may include:
- Repaying the loan
- Declaring legal dividends
- Adjusting future pay
The right solution depends on timing and profits — which is why advice matters.
A Real-World Landscaping Scenario
We often see this pattern:
- Busy summer months
- Director draws regularly
- VAT and tax not set aside
- Year-end accounts show profit — but not enough
Result:
- Overdrawn DLA
- Unexpected tax charge
- Stress and frustration
With earlier visibility, this is usually entirely avoidable.
Why Ongoing Advice Makes All the Difference
Director’s Loan Accounts rarely become a problem overnight.
They creep up quietly through:
- Small transactions
- Busy periods
- Lack of visibility
Regular check-ins allow:
- Early warnings
- Adjustments during the year
- Peace of mind
This is especially important for landscaping and gardening businesses, where income and cash flow can change quickly.
How We Help Landscaping & Gardening Limited Companies
At Accounting Matters, we help directors:
- Understand their Director’s Loan Account in plain English
- Monitor balances throughout the year
- Structure pay to avoid overdrawn positions
- Resolve issues before HMRC gets involved
Our focus is always on prevention first — because fixing problems later is usually more expensive 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.
Want Clarity on Your Director’s Loan Account?
If you’d like a clear, jargon-free explanation of your own position — and how to keep it under control — we’re always happy to have a no-obligation chat.
Accounting does MATTER 🌱