Lucy - BQ Magazine EditorThere’s a tax problem that catches a lot of small UK limited companies off guard because it doesn’t feel like a tax decision at the time. It often starts as a quick transfer, a personal purchase on the company card, or a bit of money taken out with the intention of sorting it later.
That issue is the Director’s Loan Account (DLA).
This post is a practical overview of what a DLA is, how it typically happens in real life, what records to keep, and when it’s worth getting support.
This is general information, not personal tax advice. If you’re unsure about your situation, speak to a qualified accountant or tax adviser.
What a DLA is (in plain English)
A Director’s Loan Account is a running record of money moving between you (the director) and your limited company, outside of normal salary, dividends, or properly reimbursed expenses.
If you take money out of the company and it isn’t clearly salary/dividends/expenses, it may be treated as you borrowing from the company. If you cover company costs personally, the company may owe you money. Either way, the DLA is the place those movements get tracked.
Why it’s a “quiet” trap
The DLA becomes a problem when it builds up quietly in the background and then shows up at year-end accounts (or during a tax conversation) when it’s harder and more stressful to fix.
This is especially common in owner-managed businesses. You’re busy, cash flow can be lumpy, and it’s easy for the company bank account to become a flexible pot without anyone meaning to do anything wrong.
How DLAs usually happen in real life
Most DLAs are usually caused by lots of small, slightly messy moments.
One common route is personal spending on the company card. It might be a purchase that’s partly personal, a subscription you forgot to cancel, or something that felt business-ish at the time but isn’t clearly supported later.
Another is taking money out temporarily to cover a personal bill. In your head, it’s a short-term loan you’ll repay, but time passes, and the balance sits there.
And then there are timing issues, especially around dividends. Directors sometimes withdraw money assuming it’ll be covered by dividends later, but dividends need the right paperwork and should be based on available profits. If those pieces don’t line up, the withdrawal can end up parked in the DLA.
The records that make this easier (and less stressful)
Your goal is to make every transaction easy to explain while you still remember what it was.
Keep receipts or invoices (digital is fine), and add a quick note on anything that isn’t obvious (for example, “client meeting” or “software for X project”). If you claim mileage, keep a mileage log. If you take dividends, keep the dividend paperwork (vouchers/minutes), so it’s clear what was declared and when.
A simple habit that helps. Do a quick monthly scan for anything that looks personal or unclear, and tidy it up then. It’s SO MUCH easier than trying to reconstruct the story at year-end.
Quick red flags to watch for
If any of these sound familiar, it’s worth taking a closer look at your DLA sooner rather than later:
- You regularly use the company account for personal spending.
- You take money out without labelling it (salary/dividend/expense).
- You’re not sure whether you have enough profits for dividends.
- You’re coming up to year-end and haven’t reviewed transactions.
- You’ve got a director’s loan balance that’s been sitting there for months.
When it’s worth getting support
A good accountant will help you set up a system that prevents problems. It’s usually worth getting support if your business is growing, admin is slipping, or you want to take money out regularly, but you’re not confident you’re doing it correctly.
If you want an outsourced option, RW Jarvis provides outsourced accounting services for owner-managed businesses, helping you stay compliant and avoid the kind of quiet issues that turn into stressful year-end surprises.
A simple rule that prevents most DLA headaches
If you want one practical rule to follow, it’s this. Don’t take money out unless it’s clearly salary, dividend, or reimbursed expenses. And record it as such.
If you do have mixed transactions (most people do), reviewing them monthly keeps your DLA from becoming a mystery number.
Again: this is general information, not personal tax advice. If you’re unsure, speak to a qualified accountant who can review your specific situation.