Director’s loan accounts: what an overdrawn balance means.

What the account records.

The account can show money you pay into the company, money you take out, expenses the company pays for you and personal costs paid from the company bank account.

Keep the balance visible in the bookkeeping. Review it before approving dividends or preparing year-end accounts.

When the balance is overdrawn.

An overdrawn balance means the company has paid out more for you than you have paid in or received through an approved payment. The balance is a debt from you to the company.

Record the reason for each entry. Personal spending without a clear record creates problems for the accounts, tax return and company records.

Section 455 Corporation Tax.

A close company may owe Section 455 tax on a loan to a participator that remains outstanding nine months and one day after the end of the accounting period. For loans made on or after 6 April 2026, HMRC states a 35.75% rate.

The company can claim relief when the loan is repaid, released or written off, subject to the rules and the correct disclosure.

Benefit-in-kind and write-offs.

If the loan exceeds £10,000 at any point in the tax year, a benefit-in-kind charge may arise unless an exception applies. The company may also need to report the benefit and pay Class 1A National Insurance.

A write-off can create a dividend or other personal tax consequence. Ask for advice before you waive or clear the balance.

Related guides.

Check rates, thresholds and deadlines for the correct tax year before you rely on them.