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

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?

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 and let’s talk it through.

Need help?

Why not book a meeting with us to discuss your circumstances and see how we can help.