A Director’s Loan Account (DLA) is a financial account that tracks transactions between a company and its directors (or shareholders) when money is either borrowed by the director from the company or lent by the director to the company.
It is essentially an accounting record that helps to keep track of any money or assets that flow between the director and the company they are associated with.
There are two main types of Director’s Loan Accounts:
1. Director’s Loan to the Company
This occurs when a director lends money to the company. For example, if a director injects personal funds into the company to cover short-term cash flow issues, the amount will be recorded as a loan to the company from the director.
2. Director’s Loan from the Company
This happens when a director borrows money from the company for personal use. For instance, if a director takes money out of the company’s account for personal expenses, it will be recorded as a loan from the company to the director.
It is important to keep these transactions properly recorded, as they can have tax implications and should be dealt with according to the company’s financial and tax reporting requirements. If the loan is not repaid within a certain period or follows certain specific rules, it may be treated as taxable income for the director.
Properly managing the Director’s Loan Account is essential to ensure compliance with relevant tax and accounting regulations and to avoid any potential legal or financial issues between the director and the company. Your personal and company tax responsibilities depend on how the loan is settled.
If you owe your company money:
If the loan borrowed from the company reaches over £10,000 your company must treat the loan as a benefit on kind. The loan must be reported on your Self-Assessment tax return, and you may have to pay tax on the loan at the official rate of interest, the current rate of interest is 2% and this changes yearly.
For professional advice on how to correctly manage your company’s Directors Loan Account, fill out our contact us form and a member of our team will be back in touch.