Jennifer Adams considers alternative methods for clearing an overdrawn director's loan account.
Directors of owner-managed and family companies invariably have a director’s loan account (DLA) where transactions between the director and company are recorded.
At the end of a company’s accounting period, the DLA is usually cleared via a salary allocation (assuming the director is not a salaried director), bonus, dividends, expenses, reimbursements (e.g., company bills paid personally by the director and owed back by the company) or write-off. Dividends are usually preferable because no National Insurance contributions (NICs) are payable.
Salary vs dividend
When it comes to choosing between salary and dividend, the best approach taxwise is not a ‘one-size-fits-all’ solution. It heavily depends on the unique circumstances of both
