Overdrawn Directors’ Loan Accounts

What is an Overdrawn Directors' Loan Account

When a director puts money into their company, whether at the outset or to fund a specific business asset, their loan account is in credit. If more money is withdrawn from the account than is available, however, it’s considered to be overdrawn.

The overdrawn amount must be repaid within nine months of the end of the limited company’s accounting period, and detailed records have to be kept of all transactions.

Overdrawn DLAs and benefits-in-kind

When you withdraw money from your company that isn’t salary or a dividend payment, you run the risk of triggering a benefit-in-kind if it’s not repaid in the timescale stated. If the amount withdrawn is £10,000 or more, you haven’t been charged interest on the loan by the company, and can’t claim a ‘qualifying purpose’ for the loan, there will be tax implications.

Your company will have to pay corporation tax on the amount of loan outstanding – this is then repaid to the company when the loan is paid off. This tax charge is set to increase in April 2026, which means the consequences of an overdrawn directors' loan account will be far greater if not repaid. You may also face a personal tax liability.

It’s important to seek professional advice on a director’s loan account if you’re unable to pay off the sum within the statutory timescale. We can help you manage the situation and avoid personal financial problems should your business become insolvent.

Professional insight – how Scotland Debt Solutions can help

It’s important to stay in control of your director’s loan account to avoid problems with HMRC and the Insolvency Service - should your company need to be liquidated, your conduct will be investigated to find out if you contributed to its downfall.

Our team at Scotland Debt Solutions has broad experience of helping directors to deal with problems and issues arising from operating an overdrawn DLA. If you’re pursued for repayment by an administrator or liquidator and you’re unable to pay, you may need to enter a personal debt procedure to manage the situation.

Unfortunately, if your debt levels are significant the only solution might be sequestration, which is the Scottish term for bankruptcy.

Scotland Debt Solutions helps Scottish companies and directors, and can advise on both corporate and personal debt remedies. We’ll quickly establish your overall financial position and that of your company, and explain your best options.

If you’re concerned about an overdrawn director’s loan account or need some guidance on the rules and regulations, we offer free same-day consultations at any of our offices around Scotland.