You’ve taken money from the company account for something personal. Or the company paid a bill that was yours, not the business’s. Maybe it happened once, maybe it’s been going on for months. Either way, you now have a director’s loan, and it comes with tax implications and company law obligations you need to understand.

This guide explains what a director’s loan is in Ireland, how the director’s loan account works, what Revenue and the CRO expect, and how to clear an overdrawn balance without creating unnecessary tax problems.

What is a director’s loan and what is a director’s loan account?

A director’s loan is any money taken from the company by a director that is not salary, dividends, or reimbursed business expenses. It’s essentially an advance from the company to you personally.

The director’s loan account (DLA) is the running ledger that tracks the balance between you and the company. It can go in two directions:

Overdrawn DLA (you owe the company): You’ve withdrawn more than you’ve put in. This is where most tax and legal issues arise.
Credit DLA (the company owes you): You’ve paid company expenses from your own pocket, or loaned personal money to the company. This generally creates fewer complications.

Common examples of transactions that create a director’s loan include personal purchases on the company card, the company paying your mortgage or car insurance, cash withdrawals without processing payroll, or drawing money while waiting for dividend paperwork to be completed. Even accidental ones count. If it’s not documented as salary, dividends, or legitimate expense reimbursement, it’s a director’s loan.

Why do directors’ loans arise, and how do they happen accidentally?

Some director’s loans are deliberate. A director may need short-term cash and borrows from the company intending to repay quickly. That’s legitimate, provided it’s properly documented and within legal limits.

But most director’s loans in owner-managed limited companies happen by accident:

Mixing personal and business spending on a single bank account or card
Withdrawing funds without documenting whether it’s salary or dividend
Paying personal bills from the company account during busy periods
Falling behind on bookkeeping so transactions aren’t classified until year-end

The key point: accidental loans are still treated as director’s loans. They must be recorded in the accounts, and they carry the same tax and company law consequences as deliberate ones.

What are the company law rules for directors’ loans in Ireland?

The Companies Act 2014 (Section 239) restricts a company from making loans, quasi-loans, or credit transactions to its directors or connected persons. This isn’t an outright ban, but there are strict conditions.

The main rules:

10% threshold exemption: Under Section 240, loans are permitted without formal shareholder approval if the total outstanding amount to any director (including connected persons) is less than 10% of the company’s relevant assets.
Summary Approval Procedure: If the loan amount exceeds 10% of relevant assets, the company must follow the Summary Approval Procedure (Section 242), which requires a special resolution and a written declaration by a majority of the directors of the company.
Breach consequences: Loans made in breach of these provisions are voidable at the company’s option, and directors who authorised the breach may be personally liable.

If the loan amount later exceeds 10% of relevant assets (for example, because asset values decline), the directors have two months to bring the arrangement back into compliance under Section 241.

What are the tax implications of a director’s loan in Ireland?

This is where director’s loans get expensive. There are three separate tax charges to be aware of, and they can stack on top of each other.

1. Section 438 charge on the company (close company loan tax)

Most Irish SMEs are classified as close companies (controlled by five or fewer participators). When a close company makes a loan to a participator (which includes a director-shareholder), Section 438 of the TCA 1997 triggers an additional tax charge.

The company must pay tax equal to the loan amount grossed up at the standard income tax rate of 20%. In practice, for a €10,000 loan, the company pays an additional €2,500 to Revenue. This is reported on the corporation tax return and due at the normal CT payment deadline.

There is an exemption where the total outstanding loans to a director/employee do not exceed approximately €19,050 (the pre-euro threshold of £15,000) and the individual does not hold a material interest (more than 5%) in the company. For most owner-directors, this exemption won’t apply.

The good news: if the loan is repaid, the company can claim a refund of the income tax paid. Claims must be made within 10 years of the repayment.

2. Benefit-in-kind (BIK) on the director personally

Separately from the company charge, the director faces a personal BIK charge under Section 122 TCA 1997 for each year the loan remains outstanding at a nil or below-market interest rate.

The BIK is calculated as the loan balance multiplied by the specified rate (currently 7% per annum for standard loans, or 11% for certain categories). If the company charges no interest, the full specified rate applies. If interest is charged below the specified rate, the BIK is the difference.

This BIK is treated as a taxable benefit of the director’s employment, subject to income tax, PRSI, and USC through payroll.

3. Close company surcharge

If a director borrows from the company rather than taking salary or dividends, the company’s retained profits may be caught by the close company surcharge (Section 440 TCA 1997). The loan does not count as a distribution for surcharge purposes, so undistributed investment income can attract an additional 20% tax charge.

What records must be kept for a director’s loan?

Proper bookkeeping is essential. Every transaction affecting the DLA should be recorded with:

Date, amount, and purpose of each withdrawal or repayment
Whether it’s a loan advance, expense reimbursement, salary, or dividend
Supporting invoices, receipts, and bank statements
Board minutes or written approval where the loan amount is significant

At year-end, the DLA balance must be correctly classified in the company’s financial statements. If the company has an auditor, expect questions about any material director’s loan balance. Poor documentation makes it harder to defend the treatment of transactions if Revenue or the CRO queries your accounts.

How can a director’s loan be repaid or cleared?

An overdrawn DLA should be cleared as quickly as possible to minimise tax exposure. The main options:

Cash repayment: The director repays the company directly. This is the cleanest method. Once the loan is repaid, the company can reclaim the Section 438 tax previously paid.
Salary or bonus: The company processes additional salary through payroll (PAYE, PRSI, and USC apply). The net pay is then offset against the loan balance. The gross salary is a deductible expense for corporation tax.
Dividend: The company declares a dividend from distributable reserves. The director receives the dividend (subject to income tax, PRSI, and USC at their marginal rate) and applies it to clear the loan. The dividend must be properly documented with board minutes.
Expense offset: If the director is owed money for legitimate business expenses paid personally, these can be offset against the overdrawn balance with proper receipts and documentation.

A word of caution: Revenue can challenge “bed and breakfast” arrangements where a loan is repaid shortly before year-end and redrawn shortly after. Repayments need to be genuine and sustained.

If the loan is written off entirely, the forgiven amount is treated as a distribution in the director’s hands and taxed accordingly. The company may not deduct it for corporation tax purposes.

How to avoid director’s loan problems

Prevention is always cheaper than correction. For owner-managed companies and contractors:

Keep business and personal spending separate. Use a dedicated business bank account and card. Never use company funds for personal purchases.
Set a regular payroll schedule. Process salary monthly so there’s no need for ad hoc withdrawals.
Document dividends properly. Create a dividend policy, pass board resolutions, and issue dividend vouchers. Informal “I’ll take it as a dividend” doesn’t protect you.
Keep bookkeeping current. Monthly reconciliation catches DLA movements early, before they compound into a year-end problem.
Review the DLA quarterly with your accountant. A 15-minute review every three months prevents the kind of surprises that cost thousands at year-end.

Frequently asked questions

Is a director’s loan the same as taking dividends or salary?

No. Salary goes through payroll with PAYE, PRSI, and USC deducted. Dividends are paid from distributable profits and declared by board resolution. A director’s loan is simply money taken from company funds without either of these processes. The tax treatment is different for each, and getting the classification wrong creates problems with Revenue.

Can the company pay my personal bills and record it as a director’s loan?

Technically, yes. The payment would be recorded as an advance on your DLA. But this increases your overdrawn balance, triggering the tax consequences described above. It’s almost always more tax-efficient to pay yourself properly through payroll or dividends and handle personal bills from your own account.

What happens if my DLA is overdrawn at year-end?

The year-end position matters significantly. An overdrawn DLA triggers the Section 438 corporation tax charge. BIK applies for the period the loan was outstanding. And if the company hasn’t distributed enough income, the close company surcharge may also kick in. Clearing the balance before year-end avoids or reduces these charges.

Do I need a formal loan agreement?

For material amounts or loans that will remain outstanding for more than a few months, yes. A written agreement covering the loan amount, repayment terms, interest (if any), and approval protects both the director and the company. It also demonstrates good corporate governance if the arrangement is ever reviewed.

What if the company owes me money (credit DLA)?

A credit balance means you’ve put more into the company than you’ve taken out. The company owes money to you. Repayment of a genuine credit DLA is generally not a taxable event for the director, provided there’s clear evidence of the original transactions (receipts, bank transfers, invoices). Keep documentation to support the balance.

Need help reviewing your director’s loan account?

If your DLA is overdrawn, unclear, or hasn’t been reviewed recently, now is the time to sort it out. The longer an overdrawn balance sits on the books, the more it costs in tax, BIK, and potential surcharges.

At Kinore, we help directors of Irish companies review their loan accounts, clear overdrawn balances tax-efficiently, and put proper systems in place so the problem doesn’t recur. Whether you need a one-off clean-up or ongoing DLA monitoring as part of your monthly bookkeeping, our team can help.

Book a consultation and let’s get your director’s loan account in order.

The information provided in this article is for general guidance and informational purposes only. It does not constitute professional accounting, tax, or financial advice, and should not be relied upon as a substitute for advice tailored to your specific circumstances. While we take care to ensure the content is accurate and up to date at the time of publication, legislation, tax rates, thresholds, and compliance requirements in Ireland can change.