Directors' Loan Account (Director 1)

This tracks money owed between the company and this director personally — for example funds the director has put into or drawn from the business outside of salary or dividends. It can carry a debit balance (the director owes the company) or a credit balance (the company owes the director), depending on the direction of the balance.

Real-world examples

Director introduces funds (credit balance)

A director puts £8,000 of personal savings into the company to cover a cash-flow gap before a bank loan comes through. The entry is a debit of £8,000 to 1200 (Bank) and a credit of £8,000 to 2301 (Directors' Loan Account (Director 1)) — the company now owes the director. No VAT applies. When the company repays it, the entry reverses: debit 2301, credit 1200.

Director draws funds (debit balance)

A director takes £5,000 out of the company beyond their salary and any declared dividend. The entry is a debit of £5,000 to 2301 and a credit of £5,000 to 1200 — the director now owes the company. If this isn't cleared within nine months of the company's year end, HMRC charges the company additional Corporation Tax (currently 33.75% of the outstanding balance) under section 455, repayable once the loan is settled — a cash-flow point worth watching in owner-managed companies where this happens often.

Commonly confused with

Because code 2300 (Loans) sits right next to this one in Long-Term Liabilities, it's a common mis-posting target. Code 2301 is specifically for directors' loan account (director 1), while 2300 covers loans — similar in nature, but keeping them separate is what makes the long-term liabilities section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Directors' Loan Account (Director 1) misstates what the business owes, and for a Current Liabilities code specifically it can distort the working capital and current ratio that lenders and suppliers look at when assessing short-term financial health.

Other codes in Long-Term Liabilities