Directors Loan Account (DLA) – What is it?

directors loan account

What is the Directors Loan Account (DLA)?

Understanding Directors Loan Accounts in UK Accounting Balance Sheets

As a small business owner in the United Kingdom, it's important to have a clear understanding of your company's financials. This includes being familiar with key accounting terms and concepts, such as directors loan accounts (DLA). In short, a it is an account that represents money that has been lent to or borrowed by a company's director. The Directors Loan Account you might also see called Directors Current Account (DCA).


How Directors Loan Accounts Work

In order for it to be created, there must be a transaction between the director and the company. This could be something as simple as the director paying for business expenses out of their own pocket and being reimbursed later by the company. Or, it could be a more formal arrangement where the director loans money to the company with the expectation of being paid back at a later date.


Regardless of how it is created, it will appear on the company's balance sheet as either a liability (if money was borrowed) or an asset (if money was lent). This is because directors loan accounts represent actual money that has changed hands between the director and the company. As such, they need to be accounted for in the company's financial statements.


Should You Use a Directors Loan Account?

There are pros and cons to using directors loan accounts. On one hand, they can provide much-needed cash flow when used sparingly and repaid in a timely manner. On the other hand, if they are not managed correctly they can create problems for both the director and the company. 


Tax Consequences 

Where the company owes the director money then there are no tax consequences, and the company can repay the director without tax implications. 

However, if they director owes that company money then that is called an overdrawn directors loan account and there are tax consequences. If the director does not repay the company the loan within 9 months after the end of the Corporation Tax period  then there will be Corporation Tax charged at 32.5% of the outstanding amount.  


A directors loan account is an account that represents money that has been lent to or borrowed by a company's director. These types of accounts are created when there is a transaction between the director and the company, such as the director paying for business expenses out of their own pocket or formally loaning money to the company with repayment expected at a later date. They appear on balance sheets as either liabilities or assets, depending on whether money was borrowed or lent, respectively. There are pros and cons to using it, so it's important to speak with an accountant before entering into any type of transaction that would create one.


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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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