Skip to main content

Clear Director Loan Account Overview

Do you want to clear Director Loan Account? There are five simple ways clear a Director’s loan account that is overdrawn in most companies that are owner-managed businesses.


  • Declare and vote dividends to the Shareholder Directors.
  • Pay extra salary as a bonus to the Directors.
  • Ensure all expenses have been claimed.
  • Formally write off the Director’s Loan Account.
  • Use a combination of the dividends, salary, expense claims and writing off to clear the loan account.

Dividends To Clear The Director Loan Account

You can vote a dividend. The liability that arises will be a credit to the director’s loan account. Provided the dividend is larger than the overdrawn balance then it will clear the overdrawn director’s loan account.

dividends To Clear The Director Loan Account

However, because dividends have strict rules to protect creditors, it is important that you ensure they are not unlawful dividends. A key question that needs to be asked about unlawful dividends is whether or not the company has sufficient distributable reserves.

It is important that also when assessing the ability to declare a dividend the director has in mind that the company is not insolvent. If the company were to enter insolvent liquidation within 2 years of such a dividend, then it could be reclaimed by a liquidator as a Preference.

If the dividend is deemed unlawful or a preference, then it will have to be repaid.

Salary To Clear The Director Loan Account

In the same way as with dividends, you might be able to clear a director’s loan account by paying yourself extra salary as a bonus. However, this will be reported to HMRC under Real Time Information (“RTI”) that is provided to HMRC each month. PAYE and NIC will be payable on the salary, so the company should ensure that it has funds available to pay the tax.

The company should look to ensure that it is solvent and able to pay the tax. Otherwise, it is conceivable that a liquidator might later challenge the bonus payment as misfeasance and not in the best interests of the company.

Expenses Set-Off

If you have spent money on behalf of the company you can claim that provided you have retained evidence or can properly justify it. This could help you clear the Director loan account.

Expenses Set-Off

Many directors incur expenses on behalf of a company but forget to claim them if they are considered trivial. Over time these mount up. However, you are perfectly entitled to claim them provided you are not claiming for periods when the accounts have already been filed and submitted to HMRC. If you try to claim for expenses in earlier periods then you will have to submit amended accounts and corporation tax returns which will conceivably open you up to the prospect of a tax enquiry. There are however time limits on your being able to amend such returns.

Writing Off

Writing Off loan account

You can formally write off the balance due to the company. However, if you do this it will be treated as either dividends or salary depending on the structure of the company.

Repayment And Combinations

Lastly, you can simply repay the money to the company. However, there is nothing to stop you subject to the caveats combining dividends, salary, expense claims, some repayment and some write-off element to clear Director loan account.

Liquidation To Clear The Director Loan Account

In the event that you are not in a position to clear the Director loan account using one or more of the above options and wish to close your company and make a fresh start then you can use a procedure known as Creditors Voluntary Liquidation.

Liquidation To Clear The Director Loan Account

This is a formal insolvency procedure that involves the directors of a company bringing their business to an end. You can also obtain a quote for the cost of the same.

Oliver Elliot Comment

Oliver Elliot Comment !

Liquidation will not clear the Director loan account as such because it is still deemed to be an asset of the company. However, together with the Liquidator, you will be able to consider what can be repaid based on your means to resolve matters.

If however, you find yourself ever facing a claim from a Liquidator then defending an overdrawn Director’s loan account should be taken seriously and professional advice taken as soon as possible.

Our CEO, Elliot Green has wide experience of these issues. If you need advice on the same, then get in touch below.


For a free no obligation chat about any of the matters detailed above, please do get in touch for help. An expert will call you back or if you prefer exchange emails.

We can explore your situation and consider the best way to help you and your business needs. You can call us 020 3925 3613 or fill in the form below and will get back to you quickly. We Know Insolvency Inside Out.

Author: Elliot Green
Last Updated: April 13, 2024

Please enable JavaScript in your browser to complete this form.


100% Confidential Advice
We Know Insolvency Inside Out

What Next?

Expert Advice Is Just A Click Away

If you have any questions in relation to Clear A Director’s Loan Account then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.

Our expertise is at your fingertips.

Please enable JavaScript in your browser to complete this form.

Contact Us About Loan Account


Disclaimer: Clear Director Loan Account

This page is not legal advice and not to be relied upon as such. It is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

Recent Posts / View All Posts

Directors' conflict of interest

Directors’ Conflict Of Interest Leads To Loss Of Ransom Strip

| Director Transactions | No Comments
Directors' conflict of interest was highlighted as an issue in the case of Kendall & Anor v Ball & Anor EWHC 746 (Ch). In a nutshell, this case involved a…
Dividend Tax Avoidance Scheme Apppeal Fails

Dividend Tax Avoidance Scheme Appeal Fails

| Director Transactions | No Comments
A dividend tax avoidance scheme appeal fails after being rejected by the Court of Appeal. This is the case of Clipperton & Anor v Commissioners for His Majesty's Revenue and…
Can An Overdrawn Director’s Loan Account Be A Transaction At An Undervalue

Can An Overdrawn Director’s Loan Account Be A Transaction At An Undervalue?

| Director Transactions | No Comments
Can An Overdrawn Director’s Loan Account Be A Transaction At An Undervalue? It is perfectly possible for transactions that make up an overdrawn director's loan account to be transactions at…
Moving Inter-Company And Director Balances Around And The Effect Of Liquidation

Moving Inter-Company And Director Balances Around And The Effect Of Liquidation

| Director Transactions | No Comments
This article Moving Inter-Company And Director Balances Around And Effect On Liquidation is prompted by the case of Re Pappy Ltd BRIR 1451. Offsetting balances that involve connected parties is…