---
title: What on Earth is a Director’s Loan Account? (And Why Should You Care?)
description: What is a director’s loan account, and how does it work? A simple guide for creative business owners who run their business through a limited company.
image: https://esxr.co.uk/hubfs/250715%20DLA%20Blog.webp
---

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# What on Earth is a Director’s Loan Account? (And Why Should You Care?)

![](https://esxr.co.uk/hubfs/250715%20DLA%20Blog.webp)

- July 15, 2025

![Dean Shepherd CTA FMAAT, Chartered Tax Adviser, ~30 years experience](https://esxr.co.uk/hubfs/Dean03.webp)

[Dean Shepherd CTA FMAAT, Chartered Tax Adviser, ~30 years experience](https://esxr.co.uk/blog/author/dean-shepherd)

If you’re running your creative business as a **limited company** you’ve probably heard your accountant mention something called a **Director’s Loan Account** (or “DLA” for short). But what actually *is* it and how does it affect the way you take money out of your business?

Let’s break it down in plain English.

### **The Basics: You and Your Business Are Separate**

When you operate as a **sole trader**, you *are* the business. If you take money out of your business bank account, it’s just you paying yourself. No fuss. It goes through your **Drawings Account** which is really just a record of how much you’ve taken out (or put in). There’s no tax charge when you take money, because you’re already being taxed on the total profit the business makes.

But when you run a **limited company**, things change. You and the company are two separate legal people. Even if it’s *your* company, you’re technically just an employee and/or a lender to it. That’s where the **Director’s Loan Account** comes in.

 

### **What is a Director’s Loan Account?**

A Director’s Loan Account (DLA) is like a running tab between you and your limited company. It tracks:

- Money *you* take out of the company that isn’t salary, dividends, or expenses.
- Money *you* put into the company—whether it’s covering a business cost personally, or lending it funds to get started.

It works both ways, just like an IOU. Sometimes the company owes you. Sometimes, you owe the company.

##### **Examples You’ll Recognise**

Here’s how it might show up in your creative business:

✅ **The company owes *you*** if:

- You’ve paid for a business expense (like a domain name or stock images) using your personal card.
- You lent the company some cash to help with cash flow.
- You didn’t pay yourself a salary yet, but you’ve been footing the bills.

🚫 **You owe the company** if:

- You’ve transferred money from the company account to your personal one without recording it as salary or dividend.
- You’ve used the company card to pay for personal items (accidentally or otherwise).
- You’ve drawn out more than you’ve put in, and it’s not been processed as proper pay.

 

### **So Why Does It Matter?**

If you **owe money to the company**, and don’t pay it back within 9 months of the company’s year-end, there could be a chunky tax charge for the company - **33.75%** of the unpaid amount.

Also, if the total you owe is more than £10,000 at any point, HMRC treats it as a *benefit in kind,* meaning you might have to pay **personal tax** on it too. Plus, the company could owe National Insurance.

The simple solution? Keep your DLA in the black - meaning the company owes you, not the other way around.

 

### **How’s It Different from a Sole Trader’s Account?**

|   | Sole Trader (Drawings) | Director of Ltd Company (DLA) |
| --- | --- | --- |
| 💼 Legal structure | You *are* the business | You and your company are separate |
| 💰 Taking money | You can take what you like | Must be salary, dividend, or loan |
| 📊 Tax impact | You’re taxed on total profits | You’re taxed only on salary/dividends |
| 🧾 Account needed | Drawings/Capital Introduced | Director’s Loan Account |
| 🧨 Overdrawing issues | No tax charge (but still risky) | Can trigger extra tax charges |

### **Top Tips for Creative Business Owners**

1. **Pay yourself properly**  
   Stick to a mix of salary and dividends, and keep your accountant in the loop.
2. **Keep your records clean**  
   Track any money you take out or put in *on the day it happens*. Don't rely on memory or your bank feed!
3. **Plan ahead for repayments**  
   If you do take a loan from your company, have a clear plan to repay it before the 9-month deadline.
4. **Use your accountant**  
   A good accountant will help you use your DLA smartly - especially when you’re juggling cash flow, tax efficiency and creative chaos.

 

### **Final Thoughts**

The Director’s Loan Account is a handy tool when used right but it can become a tax trap if you don’t treat it with care. Think of it like a trust-based friendship between you and your company. Keep things fair, don’t take liberties and you’ll stay on the right side of HMRC.

Need help untangling your director’s loan account? At **ESXR**, we’re all about helping creative businesses stay financially sharp without the jargon. [Get in touch](https://esxr.co.uk/contact-us) and let’s talk it through.

 

### Need help?

Why not [book a meeting](https://esxr.co.uk/book-a-meeting) with us to discuss your circumstances and see how we can help.

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