Founders and directors of Irish owner-managed limited companies who need to understand their legal and tax obligations around director's loan accounts.
This guide explains transaction recording, Companies Act restrictions, tax consequences, and a practical monthly routine to maintain compliance and avoid penalties.
Every owner-managed Irish limited company runs a director's loan account ("DLA") whether the founder knows it or not. The moment a director uses a personal card to pay a company expense, or uses a company card to pay a personal expense, an entry hits the DLA. Keeping your personal transactions coming from a personal bank account is important for the year-end audit process. However, mixing transactions between the wrong accounts can trigger a 20% income Tax charge on the grossed up balance of the DLA for the company. There are also very significant company law implications on an overdrawn DLA
This guide covers how to record the DLA, the Companies Act 2014 restrictions every director needs to understand, and a monthly routine that keeps the balance honest.
What a director's loan account is
A director's loan account is the running balance of money moving between a director and the company outside payroll and dividends. It sits on the balance sheet :
Director owes the company. A debit balance, shown as a current asset (a receivable)Company owes the director. A credit balance, shown as a current liability (a payable)
The DLA is its own ledger account, usually one per director. The balance has to be disclosed in the statutory financial statements every year under Section 307 of the Companies Act 2014, so leaving it as an unexplained suspense item is not an option.
Transactions that hit the DLA
The common entries:
Director pays for a company expense on a personal card. Debit the expense, credit the DLA (company now owes the director)
Director takes funds out of the company bank account for personal use. Debit the DLA, credit the bank (director now owes the company)
Director invests pre-incorporation cash into the company to cover setup costs. Debit the bank, credit the DLA
Salary, dividend, or expense reimbursement that clears against the DLA. Debit the DLA, credit bank or payroll control
Personal mileage and subsistence claims processed outside payroll. Debit the relevant expense, credit the DLA
A clean general ledger built on double-entry bookkeeping makes each of these unambiguous. Mixing them into "Drawings" or "Miscellaneous" is the most common reason DLAs end up wrong.
Section 239 of the Companies Act 2014
Lending company money to a director is restricted i.e DLA. Section 239 prohibits loans, quasi-loans, credit transactions, and related guarantees to directors (and connected persons) unless one of five exceptions applies:
The arrangement is worth less than 10% of the company's relevant assets
The arrangement is with another group company
The transaction reimburses the director for expenses properly incurred in their duties
The arrangement happens in the ordinary course of the company's business and on the same terms as for an unconnected person
The shareholders pass a summary approval procedure (SAP) authorising the loan
Breaching Section 239 is serious. The directors involved can face criminal prosecution, and if the loan materially contributed to insolvency, the court can impose personal liability for the company's debts without restriction. That sits alongside the reckless trading rules directors already need to navigate.
In practice this means: if your DLA is in debit (director owes the company), check whether it is above 10% of relevant assets. If it is, get advice before the next balance sheet date.
Tax implications of an overdrawn DLA
A debit DLA balance carries tax consequences as well:
Loans to participators charge. If the company is a close company (which most Irish owner-managed LTDs are), an overdrawn DLA is treated as a loan to a participator and triggers a 20% income tax charge on the grossed up loan amount, payable with the next Corporation Tax return. Repay the loan within four years and the tax is refundedBenefit in kind (preferential loan). Where a director's loan is interest-free or below Revenue's specified rate, the difference is taxed as a preferential loan BIK through PAYE, USC, and PRSI in payrollLoan written off. If the company writes off the loan, the amount is taxable as employment income or a distribution depending on the facts. Either way, it flows through payroll or as a dividend with the matching tax cost
The cleanest position is a zero DLA balance at year-end, or a small credit balance the company owes the director.
Monthly reconciliation routine
Treat the DLA like a bank account. Each month:
Pull the DLA ledger report for the period
Cross-check every entry against the supporting document: receipt, payroll journal, dividend resolution, bank transfer
Reconcile expense reimbursements against the invoice or receipt that triggered them
Confirm any salary or dividend postings cleared against the DLA, not against bank
Agree the closing balance with the director in writing (email is fine)
Flag any movement that has no documentation as a query for the next director's meeting
Keep the supporting documents in line with the six-year rule covered in our document retention guide . The routine usually takes thirty minutes per director per month. The cost of skipping it is days of work at year-end and an uncomfortable conversation with the auditor.
Year-end clean-up and disclosure
Before signing off the financial statements, three things must happen:
The DLA closing balance is confirmed in writing by the director
The balance is disclosed in the financial statements with comparatives and a description of the highest balance during the year
Any overdrawn balance is checked against Section 239 and the loans-to-participators rules, with the appropriate adjustments posted before year-end where possible
If the balance is overdrawn at year-end, the company secretary should also consider whether a Section 239 disclosure is required in the directors' report. From a tax persepective, leaving this until after the year end can limit the options of clearing the DLA. We are seeing Revenue now regularly apply interest on late payments of payroll, which was once a common way to reduce DLA's that were overdrawn at year end. This makes it even more important now to
Common founder mistakes
Treating company funds as personal. Every transfer from the company to the director should have a documented reason: salary, dividend, expense reimbursement, or loanNo separation between dividends and DLA drawings. Dividends must be declared formally and dividend withholding tax must be deducted and paid over to Revenue. Directors may not just withdraw funds without thisForgetting to clear expense reimbursements. A backlog of unposted receipts inflates the DLA and the year-end clean-upLetting balances drift between years. A balance carried forward for three years without reconciliation almost guarantees a Revenue or auditor queryMixing several directors into one DLA. Each director needs their own ledger account; consolidation hides who owes what
What to do next
Print your current DLA balance today and tie every entry from the last six months to a source document. If you cannot, that is the gap to close before year-end, not after. Set the monthly review in your calendar so the balance never surprises anyone.
If you would rather hand it off, Open Forest can build the DLA ledger structure for your company, run the monthly reconciliation, and prepare the year-end disclosures that satisfy the Companies Act 2014 and Revenue.
