When it comes to taking money out of a company, many director-shareholders turn to Directors’ Loan Accounts (DLAs). On paper, it’s a simple solution – a running tally of money owed between you and your company. But in practice, DLAs come with complex tax rules designed to prevent abuse. One misstep could leave you facing unexpected tax charges.
In this post, we break down what DLAs are, the anti-avoidance traps directors need to watch out for, and why HMRC’s recent loss at the GAAR Advisory Panel has raised eyebrows.
What Is a Director’s Loan Account (DLA)?
A DLA records money a director owes the company or vice versa. It could be:
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A formal arrangement, or
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An informal record of using company funds for personal expenses.
Issues most often arise in “close companies” (those controlled by five or fewer shareholders) where the director is also a shareholder (a “participator”).
Tax on Cheap or Interest-Free Loans
If you borrow more than £10,000 from your company without paying a commercial rate of interest, HMRC treats this as a benefit-in-kind (BIK).
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A notional interest rate of 3.75% per annum applies.
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This charge continues for as long as the loan remains outstanding during the tax year.
Section 455: The Corporation Tax Charge
Where loans to participators remain unpaid nine months after the accounting year-end, the company faces a s455 tax charge:
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Current rate: 33.75%, mirroring the higher dividend tax rate.
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The charge is refundable, but only if the loan is later repaid and a claim is made within four years.
This is meant to discourage directors from treating their companies like personal banks.
Anti-Avoidance Rules: The End of “Bed and Breakfasting”
In the past, some directors avoided the s455 charge by repaying loans before year-end and then withdrawing funds again soon after – a tactic known as bed and breakfasting.
Since 2013, HMRC has targeted this with two rules:
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The 30-Day Rule (s464C(1))
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If you repay £5,000+ and borrow again within 30 days, the repayment is matched with the new loan.
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The repayment won’t reduce your s455 charge.
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The Arrangements Rule (s464C(2))
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If your loan is at least £15,000 and there’s an intention to reborrow £5,000+, the repayment is ignored – even beyond 30 days.
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✅ Key exception: These rules don’t apply if the repayment comes from taxed income (like salary or dividends) paid by the same company that made the loan.
Why This Matters More Now
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With rising interest rates, benefit-in-kind charges are becoming more costly.
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HMRC’s digital compliance systems make loan patterns easier to track.
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Directors relying on repeated loan-repay-loan cycles are more likely to face scrutiny.
Final Thoughts
Directors’ loans can be a useful tool for cashflow, but the traps are real. Short-term fixes like bed and breakfasting no longer work, and getting it wrong can mean extra corporation tax, benefit-in-kind charges, and interest penalties.
If you’re considering or already using DLAs, take advice before moving funds. Proper planning ensures your withdrawals remain tax-efficient, compliant, and stress-free.
👉 At Cloud 9 Accounting Services, we help directors structure their finances, avoid HMRC pitfalls, and keep more of what they earn.
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