HMRC has done it again—another quiet tax increase that will cost limited company owners more money, often without them even realising.
As of this year, HMRC’s official interest rate has jumped by 50%, rising from 2.25% to 3.75%.
While it might not sound like a huge change, it could cost directors hundreds, even thousands of pounds if they’re not managing their company finances properly—especially when it comes to director’s loan accounts.
What Is a Director’s Loan Account?
Many limited company owners routinely withdraw money from their business each month, often labelling it as a “dividend” in their bank transfer references.
But here’s the problem:
💥 A dividend isn’t just money you take out.
💥 Dividends must be formally declared, supported with dividend vouchers, and based on available post-tax profits.
If you withdraw money without properly declaring it as a dividend, you’re actually taking a loan from your company—and that’s known as an overdrawn director’s loan account (DLA).
How the Interest Rate Increase Affects You
If your director’s loan exceeds £10,000 at any point during the year, and you don’t repay it or declare proper dividends, HMRC will charge you interest on that loan.
Previously, the interest rate was 2.25%.
Now, it’s risen to 3.75%.
Here’s how that plays out in real numbers:
📌 Example:
- You withdraw £5,000 per month
- You’re on £1,047 PAYE
- The remaining £3,953 per month is assumed to be dividends
- Over a year, this creates an overdrawn DLA of £47,340
Old interest charge (2.25%) = £1,065
New interest charge (3.75%) = £1,775
That’s an extra £710 per year, simply for poor planning—and many directors have no idea they’re incurring this cost.
How to Avoid This Costly Mistake
This issue affects 95% of company directors who only get their accounts done once a year, long after the opportunity for tax planning has passed.
By the time you see the numbers, it’s too late to correct them—and HMRC has already applied the interest.
At Adaptive Accountancy, we do things differently.
✅ We prepare accounts and tax estimates quarterly
✅ We monitor your director’s loan balance in real time
✅ We help you declare dividends properly throughout the year
✅ We flag potential issues before they cost you money
Don’t Let HMRC Take More Than They Should
In a world of ever-changing tax rules and hidden costs, now more than ever, you need a proactive accountant—one who keeps your records updated, helps you make better financial decisions, and prevents avoidable tax charges.
Most small business owners don’t know about these rules—and that’s not their fault. You don’t know what you don’t know.
But with the right accountant, you don’t have to.
📩 If you’re ready to stop overpaying tax and take control of your finances, get in touch with Adaptive Accountancy today.
