What is a director's loan account?

A director's loan account records money moving between a director and their company that isn't salary, dividends, or a genuine reimbursement of business expenses. Used properly, it can be a normal and helpful part of running a limited company because it helps track whether the director owes the company money or the company owes the director money.

Why isn't it personal cash?

A limited company is a separate legal entity, so the money in its bank account belongs to the company, not to the director personally. Even if the director owns the shares and makes the decisions, that does not give them unlimited rights to use company funds for personal use. The legal point is that the intention to repay later does not automatically authorise the original withdrawal.

What risks come with misuse?

If a director uses the loan account like a personal current account, the company and the director can face legal, accounting, and tax problems. An overdrawn loan account may trigger Corporation Tax consequences for the company or personal tax charges for the director. Poor records can also make it difficult to prove what the transactions were meant to be and to untangle them later.

How should directors use it?

Directors should treat the loan account as a clear record of legitimate transactions between themselves and the business, such as personal payments made on the company’s behalf, loans to the business, or properly arranged borrowing from the company. The key is to document the reason for each transfer, keep records current, obtain approval when needed, and ask an accountant if you're unsure.

A Director's Loan Account is useful, but it isn't your personal ATM

CREATED BY ROGER EDDOWES

Published: 05/10/2026 @ 09:00AM

#DirectorsLoanAccount #LimitedCompanyFinance #BusinessAccounting #SmallBusinessTips #CompanyDirectorFinance

A director's loan account can be a normal, useful part of running a limited company. It records money moving between a director and their business that isn't salary, a dividend or reimbursement of a genuine business expense ...

Thinking of booking a holiday? Probably not a good idea to use your company debit card and Director's Loan Account to do it!

However, a recent High Court case reminds us that an important legal distinction remains between your money and your company's money. The case involved a director who used company funds for personal expenses over several years.

Transactions were recorded through the director's loan account
but the Court found the money was not authorised!

Importantly, the argument that the director always intended to repay the money did not make the original transactions acceptable. An intention to repay the money later is not necessarily the same as having authority to take it in the first place.

This is particularly relevant to owner-managed businesses, where the dividing line between the individual and the company can sometimes feel rather blurred. You may own the shares, make the decisions and have built the business from scratch, but a limited company remains a separate legal entity. The money sitting in its bank account belongs to the company.

That doesn't mean directors should fear using loan accounts. There are plenty of legitimate reasons why money might move between you and your business.

Perhaps you have personally paid for something the company needed, loaned the business money when cash flow was tight, or borrowed money from the company under a properly arranged loan. The key is to understand what the transaction represents, record it correctly, and obtain any necessary approval.

A director may also face tax consequences when
they owe money to their company!

Depending on the circumstances, an outstanding loan can result in additional Corporation Tax for the company or personal tax implications for the director. Allowing a loan account to build up without understanding the position can therefore create an unpleasant surprise later.

For me, the wider lesson is about maintaining good financial habits. Small businesses naturally operate with less formality than large organisations, but informal doesn't have to mean undocumented.

If money moves between you and your company, make sure you know why, keep the records up to date and ask your accountant when you are unsure.

A director's loan account should provide flexibility and a clear record of money moving between you and the business. Used properly, it does exactly that. However, if you use it as an informal extension of your personal current account, it can create legal, accounting, and tax problems.

And they are considerably harder to untangle afterwards.

Until next time ...

ROGER EDDOWES
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If anything I've written in my blog post resonates with you and you'd like to discover more of my thoughts about using your director's loan account correctly, then do call me on 01908 774320 and let's see how I can help you.

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About Roger Eddowes ...

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.

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A Director's Loan Account is useful, but it isn't your personal ATM

Transactions were recorded through the director's loan accountbut the Court found the money was not authorised!

That doesn't mean directors should fear using loan accounts. There are plenty of legitimate reasons why money might move between you and your business.

A director may also face tax consequences whenthey owe money to their company!

If money moves between you and your company, make sure you know why, keep the records up to date and ask your accountant when you are unsure.

Transactions were recorded through the director's loan account
but the Court found the money was not authorised!

A director may also face tax consequences when
they owe money to their company!