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Overdrawn director’s loan accounts: Will HMRC’s crack down impact you?
September 22, 2026
Directors are required to keep a record of any monies borrowed from their company. That does not include a salary or dividend payment, repayment of a legitimate business expense or monies they have loaned to the company. This record is known as the ‘director’s loan account’, this should be recorded within the company’s accounts. DLAs are a lawful and flexible way for a director to manage any cross-over between the company’s and the director’s personal finances. However, any company funds that are withdrawn from the company and not incurred wholly and exclusively for the purpose and benefit of the company must be recorded and repaid, as that money belongs to the company.
In practice, it is common for directors not to keep such a record, especially in smaller, informally managed companies (SMEs), and this tends to come to light once the company enters a formal insolvency process. If the DLA shows a negative balance, i.e. a company asset, then the appointed insolvency practitioner will seek to recover the balance from the director, and this may involve taking legal action against the director.
HMRC’s new measures for tackling DLAs include:
Depending on the amounts loaned to the directors, and the amount of time the money is borrowed, a company may be liable to pay section 455 corporation tax charge. As part of HMRC’s tightening measures, they have increased the rate of s455 tax payable on any new loans to directors that are not repaid within nine months and one day from 33.75% to 35.75%.
The 30-day rule has been introduced to prevent ‘bed and breakfasting’. This is a term used to refer to a method used by company directors to avoid paying tax on their DLAs, and allowing them to benefit from the loan monies for considerably longer than originally granted. For example, where a director who borrows money from their company and repays it within 9 months and 1 day, but then borrows the same amount of money again within a short period of time, the company would have avoided a charge to s455 tax.
To tighten this loophole, HMRC have now introduced a 30-day rule. This rule treats the repayment of any loans, and then withdrawal of the exact amount in 30 days or less, as one continuous loan. This means HMRC will now ignore the fact a repayment was ever made and consider the loan as remaining outstanding in full.
Even if the new loan falls out of the 30-day time limit, if HMRC are able establish and prove an intention to act in such a manner, HMRC have the ability to apply s455 tax to the amount borrowed.
Under the Companies Act, the company is required to keep adequate accounting records to show and explain the company’s transactions. However, HMRC are now also requiring that all DLA transactions are recorded with the recipient’s name, amount received and date of transaction. This makes the process of evidencing a DLA more transparent, and disguising transactions as business expenses practically impossible.
Key Takeaway
HMRC are tightening the over-use and under-repayment of DLAs and tax payable on those DLAs. Benefits to the directors of non-repayment are now being counteracted by HMRCs new crack down on such loans, in turn increasing the cost of borrowing.
Darwin Gray’s insolvency team are regularly instructed in relation to the recovery of overdrawn DLAs. If you have any questions or concerns regarding an overdrawn DLA, or need any help or advice on an insolvency related matter, please contact one of our insolvency specialists on 02920 829 100 for a free initial chat or via our Contact Us form.
To speak to one of our experts today, please contact us on 02920 829 100 or by using our Contact Us form for a free initial chat to see how we can help.
