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What is a director's loan account?

Answered 17 March 2026

A director's loan account (sometimes called a director's current account) is an accounting record maintained by a company that tracks all financial transactions between the company and one of its directors — recording money the director puts into the company, money the director withdraws, and credits such as salary, dividends or expenses.

HMRC guidance / practice

HMRC guidance explains that each transaction on a director's loan account can fall into one of several categories:

  • A repayment (or partial repayment) of a loan where the account is in credit;
  • A further loan from the company to the director; or
  • A payment made on account of earnings.

Whether a withdrawal is a loan, earnings, or a payment on account of earnings is always a question of fact based on all available evidence.

HMRC guidance sets out the key tax consequences depending on the nature of the withdrawals:

  1. Remuneration: If directors decide (formally or informally) that withdrawals are remuneration or on account of remuneration, they are not loans — PAYE must be applied at the time of withdrawal.
  2. Loans (overdrawn account): If withdrawals are not remuneration, they may put the director in debt to the company. Where the account becomes overdrawn, beneficial loan charges may arise under Chapter 7 of Part 3 of ITEPA 2003, unless an exemption applies.
  3. Interest relief: Interest on a debt incurred by overdrawing a director's account does not qualify for relief under s.383 ITA 2007, regardless of the use to which the money is put.
  4. Close company loans: Where the company is a close company, a loan to a director who is a participator may also trigger a tax charge on the company under s.455 CTA 2010.
  5. Loan write-off: A write-off of a loan is treated as a payment of earnings liable to Class 1 NICs.

In practice, a director's loan account can run in credit (the company owes the director money, e.g. where the director has lent money to the company) or go into debit/overdrawn (the director owes the company money, e.g. where withdrawals exceed amounts credited).

In summary: A director's loan account is the running ledger between a director and their company recording all money flows between them. Its tax treatment depends entirely on the nature of each transaction — whether it constitutes a loan, remuneration, or a dividend — with significant consequences for PAYE, NICs, beneficial loan charges, and potentially corporation tax under s.455 CTA 2010.

Citation sources

1 MANUAL
Class 1A National Insurance contributions: Special Class 1A NICs cases: Beneficial loans: Directors’ loan accounts: Overdrawn loan accounts: Example

NIM16678 explains on what amounts Class 1A NICs are due where a loan account is used and is overdrawn, where a director owes the company money. Below the example illustrates an overdrawn loan account and the Class 1A NICs liability. Example Director makes a short term loan of £30,000 to the to the company on 1 February 2020, so the company owes them £30,000. The loan account is in credit by £30,000. In the 2020 to 2021 tax year, the director draws a total of £40,000 from the company. On 10 Augu

HMRC guidance
2 MANUAL
Class 1A National Insurance contributions: Special Class 1A NICs cases: Beneficial loans: Directors’ loan accounts: General

When reviewing a director’s current or loan account with a company, bear in mind that it is always a question of fact, based on all the evidence available, whether a withdrawal is a: loan, earnings; or a payment on account of earnings. See NIM12018 for guidance to help identify the type of payment. If the withdrawal results in the director owing the company money and the overdrawn amount is a loan, Class 1A NICs may arise if the conditions in NIM13021 are satisfied. See NIM16677 for further guid

HMRC guidance
3 MANUAL
Class 1: Calculating Class 1 NICs for Directors: Directors' loan accounts: Other liabilities

If the directors make withdrawals which are not earnings or on account of earnings, the withdrawals may place the directors in debt to the company. If there is a tax charge on the individual under Chapter 7 of Part 3 of ITEPA 2003 (previously s160 ICTA 1988(‘beneficial loans’)) from 6 April 2000, there will also be a Class 1A NICs charge on the employer (see NIM13000 onwards). But you should note that a write-off of a loan is considered to be a payment of earnings liable to Class 1 within s3 and

HMRC guidance
4 MANUAL
The benefits code: beneficial loans: interaction between employment income and other tax charges: director's current or loan accounts with a close company

When reviewing a director's current or loan account with a company, an Inspector should bear the following in mind: if the directors own all the share capital of the company and either formally or informally decide that sums being withdrawn by them from the company are remuneration, or on account of remuneration, the withdrawals are not loans. PAYE should be applied at the time of the withdrawal. Withdrawals are assessable as remuneration in the year in which they are received (see EIM42270) if

HMRC guidance
5 MANUAL
Class 1: Calculating Class 1 NICs for Directors: Withdrawals from Directors' loan accounts

Each withdrawal or debit transaction can be: a repayment, or partial repayment, of the loan if the account is in credit, or a further loan, or a payment made on account of earnings. An overdrawn account might be initial evidence that withdrawals are on account of remuneration to be credited at the end of the company’s accounts year but it is not conclusive in itself. An account might be overdrawn during the company’s accounts year because the company has agreed to make a loan or loans to the dir

HMRC guidance