What is an Overdrawn Director's Loan Account?
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A directors’ loan account (DLA) is a notional balance owed between directors and the company. This is a fairly common process in many companies of various sizes, with the process used to record:
- money injected into a business by directors
- money taken out of a business by the directors
There are various legal and financial implications at play – particularly related to tax – if you don’t go about paying back your directors’ loan in a correct and timely manner, so if you are worried about any issues related to directors’ loan account rules or an overdrawn directors’ loan account, get in touch with the expert team here at The Insolvency Experts today.
By quickly taking back control we can help you solve the problems that the business has.
- Any cash withdrawals from the company that you have made as a director.
- Personal expenses that have been paid with company money or credit card.
Three Key Questions on a directors’ loan account
What are the legal implications of an Overdrawn Directors’ Loan Account?
DLAs are perfectly legal and there are no issues taking one out (although it needs to be approved by shareholders if it is over £10,000). However, it needs to be repaid or offset within nine months of your company’s financial year end, or it is seen to be overdue and judged as an interest-free loan from the business, with tax implications.
Is my Directors’ Loan Account in debit or credit? What next?
If the business owes you more than you owe it, your DLA is known as ‘in credit’. Conversely, if you owe the business more than you owe it, the DLA shows as a debit balance (it is overdrawn). Things get a bit more complicated when the business is viewed to be insolvent and the DLA is overdrawn.
In this situation, it is deemed to be an asset of the business, and a, appointed insolvency practitioner will look to try to recover that money to help pay off creditors. There is a chance that the loan will be written off if it’s judged to be irrecoverable, but in most cases, some or all of the loan will need to be repaid.
How do I find the right advice on my Directors’ Loan Account?
If you have any concerns about Directors’ Loan Accounts or you need advice on repayment if your business is now insolvent, call The Insolvency Experts’ friendly and professional team, who are ready to help. Please click over to our Contact page if you’re looking to speak to us today for any further advice on directors’ loan accounts.
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