Finance Matters Insights
Does your business owe you money?
If somewhere along the way you also dived into the world of business, you won't be alone if you can't seem to keep up with all the rules surrounding what you owe, or what is owed to you.
Most founders start a business with their own money, covering expenses long before there's a registered company or any structure in place. What most founders aren't aware of is that those early personal contributions are often still claimable, even years later.
If you've ever put your own money into building your business and haven't formally treated it, keep reading.
📒 Your Director's Loan Account
If you run a limited company, your Director's Loan Account (often called the DLA) records money that moves between you and your company outside of normal salary, dividends, or reimbursed expenses. It can sit in two directions:
→ Credit balance: the company owes you money (e.g. you've put personal funds in to cover business costs).
→ Debit balance: you owe the company money (e.g. you've withdrawn more than you should have).
The credit side often goes missed because most people don't assume they're owed anything from the business.
💰 The money owed back to you
If you used your own money to get the business off the ground (laptop, website, software, branding, freelancer payments, stock, anything that was a genuine business cost) those costs are still yours to recover, even years later.
How it gets treated depends on the timing:
→ Money spent after incorporation: Anything you paid for personally that was a genuine business cost can be recorded as a credit on your Director's Loan Account. That credit balance is money the company legally owes you. You can withdraw it from the company at any point, tax-free, because it's a repayment of a loan, not income.
→ Money spent before incorporation: HMRC allows a company to claim relief on expenses incurred up to seven years before trading began, provided they would have been allowable business expenses had they been incurred after trading started. In practice this covers things like domain names and website costs, branding and design, software subscriptions, equipment (laptops, cameras, phones), professional fees (legal, accounting setup), and training or qualifications directly relevant to the business.
A few things worth knowing across both:
- You don't need to have formally "lent" the company money in writing. As long as the spend was genuinely for the business and you can evidence it (invoices, receipts, bank statements), it can be recorded properly.
- There's no time pressure to repay yourself. A DLA credit balance can sit there for years and be drawn down whenever it makes sense for your cash flow.
- If you're a higher rate or additional rate taxpayer, drawing down the DLA credit balance is often more tax-efficient than taking an equivalent amount as dividends or salary, because it isn't taxed at all.
🧾 For Sole Traders
For sole traders, there's no separation between you and the business. You and the business are legally the same person, so the concept of a Director's Loan Account doesn't exist.
What you have instead are drawings (money you take out of the business for personal use) and capital introduced (money you've put in). Neither is taxed when it moves. What's taxed is your business's profit, regardless of whether you take it out or leave it in.
That said, the pre-trading expenses rule still applies. If you spent money on legitimate business costs in the years before officially starting (HMRC allows up to seven years), those expenses can be claimed against your profits once you're trading. So that £400 laptop, the website, the courses you took to upskill, the equipment, all of it could potentially be deductible, hence reduce tax owed.
📌 What it means for you
A few things worth doing if the above applies to you:
- If you're a director, ask your accountant to confirm what your current DLA balance is and whether there's a credit balance you've forgotten about.
- If you're a sole trader, pull together any pre-trading expenses you may not have claimed.
- If you've taken more out of the company than you should have, get a plan in place to repay before the next year-end.
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F
Fisayo Martins
Founder at Finance Matters UK
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