Director’s Loan Accounts (DLAs) are one of the most misunderstood parts of running a property limited company.
They’re also one of the most common reasons property directors end up with:
- Unexpected tax bills
- HMRC letters
- Cashflow pressure
- Sleepless nights
The frustrating part?
Most directors didn’t do anything reckless.
They simply weren’t shown how DLAs actually work — or how quickly they can turn from helpful to harmful.
In this blog, we’ll explain:
- What a director’s loan account really is
- Why property companies use them so often
- When they’re perfectly fine
- When they quietly become dangerous
- And how to stay in control without panic
What Is a Director’s Loan Account (In Plain English)?
A director’s loan account records money moving between you and your company that isn’t:
- Salary
- Dividends
- Reimbursement of expenses
Think of it as a running balance that answers one simple question:
Does the company owe you money — or do you owe the company?
If:
- 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
That’s it.
The problem isn’t the concept — it’s how easily it’s ignored.
Why Director’s Loan Accounts Are So Common in Property Companies
Property companies rely on DLAs far more than most other businesses.
Why?
Because property directors often:
- Fund deposits personally
- Pay solicitors, surveyors, or refurb costs upfront
- Cover cash shortfalls temporarily
- Refinance and repay themselves later
In the early stages, DLAs are often credit balances (the company owes the director).
This is completely normal — and usually 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 happens when:
- You take money that isn’t salary or dividends
- Dividends are taken without sufficient profit
- Personal expenses are paid through the company
- Cash is taken “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 internal accounting issue.
It has real tax consequences.
1. Section 455 Tax (The Big One)
If a director owes the company money 9 months after the year end, the company may have to pay Section 455 tax.
This is:
- A temporary tax charge
- Currently 33.75% of the loan balance
- Paid by the company to HMRC
Yes — the company pays tax because the director borrowed money from it.
It can be reclaimed later, but that’s often years away — and it creates immediate cash pressure.
2. Benefit-in-Kind Charges
If the loan is:
- Over £10,000 at any point
- And interest isn’t charged
HMRC may treat this as a benefit-in-kind, triggering:
- Personal tax
- Additional reporting
- More admin and complexity
Again — often a surprise.
3. Repayment Pressure at the Worst Time
Once flagged, overdrawn DLAs often need to be:
- Cleared
- Reclassified
- Or repaid quickly
This usually coincides with:
- Corporation tax bills
- Personal tax bills
- Mortgage payments
- Refinancing discussions
Cash stress compounds — fast.
Why Property Directors Get Caught Out More Than Most
Property companies are especially exposed because:
- Profits don’t equal cash (see Blog 2)
- Money moves irregularly
- Dividends are often taken based on bank balance
- Capital repayments drain cash invisibly
A director can feel “comfortable” for months — until one review reveals a loan problem that’s been building quietly in the background.
The Most Common DLA Mistakes We See
Here are the patterns we see repeatedly with property directors:
“I’ll Sort It at Year End”
But year end comes after the damage is done.
“It’s Only Temporary”
Temporary withdrawals often become permanent balances.
“The Company Made a Profit”
Profit doesn’t automatically allow withdrawals.
“No One Told Me”
Sadly, very common.
None of these make you irresponsible — they make you unsupported.
When Director’s Loan Accounts Are Absolutely Fine
Let’s be clear — DLAs are not bad.
They are perfectly fine when:
- They are in credit
- They are reviewed regularly
- Withdrawals are planned
- Dividends are properly declared
- Tax implications are understood
Many successful property companies 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 don’t:
- Warn you mid-year
- Stop bad decisions
- Prevent tax charges
- Help you plan repayments
By the time the issue appears in the accounts, the window to avoid tax consequences may already be closed.
How Property Directors Stay Safe with DLAs
The safest property directors do four things consistently:
1. Regular Reviews
They check loan balances during the year — not just at year end.
2. Planned Withdrawals
Money is taken intentionally, not casually.
3. Dividend Checks
Dividends are declared only after confirming profits and cash.
4. Clear Advice
They understand why something is allowed — not just that it happened.
This doesn’t require complexity.
It requires clarity.
DLAs and Mortgages: The Overlooked Link
One area often missed is lending.
Mortgage providers may:
- Review accounts
- Look at director withdrawals
- Assess company stability
Uncontrolled director loans can:
- Raise questions
- Reduce confidence
- Complicate refinancing
This is rarely mentioned — but increasingly relevant.
The Emotional Cost of Getting This Wrong
Beyond tax and cash, there’s another cost.
Directors with unmanaged DLAs often experience:
- Constant low-level anxiety
- Avoidance of financial conversations
- Loss of confidence in the numbers
- A feeling of “something’s wrong”
That 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 someone informed and supported, it works well.
Left unchecked, it becomes a problem that arrives without warning.
If you’re unsure where your loan account stands right now, that uncertainty alone is a signal — not a failure.
Clarity always beats assumptions.