Key takeaways
What this article covers, in order:
- How it usually happens
- What the director's loan account actually is
- Sole traders: this isn't for you (quite)
- A worked example: Sam's running balance
- How each transaction looks in the books
- The mistakes we see most
If you run a limited company and you put a personal purchase on the company card, it isn't a business expense. In the books it goes to your director's loan account, which tracks money moving between you and the company that isn't salary, dividends or a proper expense claim. The same account records the other direction too: business costs you paid for personally. Keep it up to date as you go and it's simple. Leave it to year end and it turns into an archaeology project.
This is the director's loan account explained from the bookkeeping side. The tax side of a director's loan account (and there is one, especially if it's overdrawn) is something to talk through with your accountant.
How it usually happens
Sam is the sole director of a small marketing agency in Nottingham. It's a Friday, he's at the supermarket, his personal card's in his other jacket, and he pays £86.50 for the weekly shop on the company debit card. Perfectly human.
Three weeks earlier, the agency's laptop died during a client pitch, and Sam bought a replacement on his personal credit card because the company card was at the office. £1,200.
Neither of these is wrong. Both need recording properly, and they go in opposite directions.
What the director's loan account actually is
A company is a separate legal person from its director. So when money moves between you and the company outside the normal routes (salary, dividends, expense claims), the company either owes you, or you owe the company. The director's loan account (often shortened to DLA) is where the books keep score.
| Situation | Effect on the DLA |
|---|---|
| You pay a business cost from your own money | Company owes you more |
| You lend the company money | Company owes you more |
| You spend company money on something personal | You owe the company more |
| You take money out that isn't salary or a dividend | You owe the company more |
| You pay money back into the company | You owe the company less |
| The company repays money it owes you | Company owes you less |
If the company owes you, the account is in credit. If you owe the company, it's overdrawn. That's the language your accountant will use.
Sole traders: this isn't for you (quite)
A sole trader's business isn't a separate legal person. Money you take out is simply drawings, and personal spending on the business account is also drawings. There's no loan between you and yourself. The bookkeeping habit is the same though: personal spending never goes into business expense categories.
A worked example: Sam's running balance
Here's Sam's DLA over Sep 2026 and Oct 2026. We'll show "company owes Sam" as a positive balance and "Sam owes company" as a negative one.
| Date | What happened | Change | Running balance |
|---|---|---|---|
| 8 Sep 2026 | Sam buys business laptop on personal card | +£1,200.00 | +£1,200.00 |
| 26 Sep 2026 | Weekly shop on company card | −£86.50 | +£1,113.50 |
| 2 Oct 2026 | Personal flight on company card | −£240.00 | +£873.50 |
| 10 Oct 2026 | Sam transfers £1,500 from company to personal account | −£1,500.00 | −£626.50 |
| 24 Oct 2026 | Sam pays £626.50 back into the company | +£626.50 | £0.00 |
Check the arithmetic: £1,200.00 − £86.50 − £240.00 − £1,500.00 + £626.50 = £0.00.
Look at what happened on 10 Oct 2026. Sam took £1,500 out because he thought the company owed him for the laptop. It did, but only £873.50 by then, because his personal spending had already eaten into it. So he overdrew the account by £626.50. He spotted it two weeks later, paid it back, and the balance went to zero.
Without a running balance, Sam would never have known.
How each transaction looks in the books
Personal spend on the company card
The £86.50 supermarket shop comes in from the bank feed as money out. Categorise it to the director's loan account, not to any expense category. Your profit isn't affected, which is right, because it wasn't a business cost.
Business cost paid personally
The £1,200 laptop never touched the company bank account, so no bank feed will show it. You record it yourself: the cost goes to the right business category (equipment, in this case) and the other side goes to the director's loan account, showing the company owes you £1,200. Keep the receipt.
Money taken out
The £1,500 transfer to Sam's personal account appears in the bank feed. Unless it's salary (paid through payroll) or a dividend (formally declared), it goes to the director's loan account.
Money paid back
The £626.50 Sam paid in also appears on the feed. It goes to the director's loan account, reducing what he owes. It's not sales and it's not income.
The mistakes we see most
- Personal spending left in expenses. The supermarket shop gets categorised as "Office costs" or "Staff welfare". It overstates the company's costs, and your accountant will have to unpick it.
- Business costs paid personally never recorded. You lose the cost from the company's books and forget the company owes you.
- Money in from the director treated as sales. A director topping up the company bank account isn't revenue.
- No running balance. You only find out the account's overdrawn at year end.
A director's loan account habit that works
- [ ] Once a week, scan the business card and bank for anything personal; move it to the DLA
- [ ] Record any business costs you paid personally as soon as you can, with the receipt
- [ ] Before taking money out of the company, check the DLA balance first
- [ ] Note what each DLA entry was for in the description
- [ ] At month end, look at the DLA balance and ask: does the company owe me, or do I owe it?
- [ ] If the balance is overdrawn, mention it to your accountant early, not at year end
Better still, get a personal card that lives in a different pocket from the company one. It won't eliminate mistakes, but it cuts the Friday supermarket problem down a lot.
When to call your accountant
An overdrawn director's loan account can have tax consequences for both you and the company, and the rules care about how much is owed and for how long. We won't go into those here, because they depend on your situation and change from time to time. If your DLA is overdrawn at any month end, or you're planning to borrow from the company, talk it through with your accountant first.
How HelloBooks helps
HelloBooks keeps the bookkeeping side tidy. Connect your bank through Open Banking (most UK banks and cards), or import a CSV statement, and transactions land in a review list where you confirm or change each category, including moving personal spending to the director's loan account. If you use the company card on the go, the mobile app (iOS and Android) means you can deal with it the same day.
The Balance Sheet shows where the director's loan account stands, and you can invite your accountant into the same books so they're looking at the same figures you are. Pro (£14.99 a month) adds AI auto-categorisation and unlimited users with roles. See bookkeeping features and UK pricing.
FAQs
What is a director's loan account?
It's an account in a limited company's books that tracks money moving between the director and the company outside salary, dividends and expense claims. It shows whether the company owes the director or the director owes the company.
I used the company card for something personal. What do I do?
Categorise that transaction to the director's loan account, not an expense. Either pay the company back, or let it reduce what the company owes you.
I paid for a business expense with my own card. How do I record it?
Record the cost in the right business category, with the other side going to the director's loan account. That shows the company owes you the money.
Is money I put into my company income?
No. A director lending or paying money back into the company goes to the director's loan account, not sales.
What does "overdrawn" mean for a director's loan account?
It means you owe the company money. It's worth raising with your accountant, because there can be tax consequences.
Do sole traders have a director's loan account?
No. Sole traders record money they take out as drawings.
Keep the DLA as current as your bank balance, and a slip on the wrong card becomes a two-second fix rather than a year-end headache.
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