Paying personal expenses from the company account has four consequences that cost actual money: a director's loan account that SARS can treat as a deemed dividend subject to dividends tax, deductions disallowed because the expense was not incurred in producing income, financial statements a bank will not lend against, and in a dispute, evidence that the company was not being treated as separate from you. None of these show up immediately, which is exactly why the habit persists.
Every accountant has had the conversation. It is never about tidiness.
What actually happens when you pay personal expenses from the company?
The money does not disappear. It becomes a debt you owe the company.
Your director's loan account records the running balance between you and the company. Money you put in, the company owes you. Money you take out that is not salary or a properly declared dividend, you owe the company.
A loan account overdrawn in the company's favour — you owing it — is where the problems start. See what is a director's loan account and why does SARS care.
The four costs
1. A deemed dividend
The most expensive one, and the one people have never heard of.
Where a company provides a loan or credit to a shareholder or a connected person, and interest is not charged at an appropriate rate, the shortfall can be treated as a deemed dividend in specie, subject to dividends tax at 20%.
The company pays that, and it is not recoverable from you.
A worked illustration. You have taken R400,000 out over three years, none of it salary, none of it declared as a dividend, no interest charged.
| Loan account owing to the company | R400,000 |
| Interest shortfall treated as a deemed dividend | The benefit conferred |
| Dividends tax at 20% | Payable by the company |
| Plus | Penalties and interest if it was never declared |
The precise calculation depends on the official rate and the facts, and it is a computation to do properly rather than estimate. The point is that a loan account nobody thought about generates a real tax liability.
Take advice on any material loan account. There are legitimate ways to structure and clear one — repayment, a declared dividend, additional salary — and they have different costs. See salary or dividends and how dividends tax works.
2. Disallowed deductions
An expense is deductible where it was incurred in the production of income and is not of a capital nature. A personal expense fails that test.
Where personal spending is mixed into business expenses, the whole category becomes questionable in an audit — not just the personal part.
Two categories cause most of it:
Vehicle costs, where the same car does school runs and site visits. Without a logbook you cannot substantiate the business portion at all.
Travel and entertainment, where a genuine business trip includes a personal weekend.
See the expenses SARS most often disallows and what business expenses are tax deductible.
3. Financial statements nobody will lend against
A bank assessing a loan application reads the numbers to work out whether the business generates enough to service debt.
A profit figure polluted by personal spending does not answer that question. The bank either discounts the figures heavily or declines. Either way, mixed accounts cost you the facility — and usually at the moment you need it. See what financial statements banks want for a business loan.
The same applies to a buyer. A business whose accounts require the seller to explain which expenses were "really" personal is a business that sells at a discount, if it sells at all.
4. The company stops looking separate from you
This is the one that matters most and gets mentioned least.
A company is a separate legal person, and that separation is what limits your liability. It is also, in ordinary circumstances, protected.
But where a company has been treated as an extension of the owner's personal finances, that pattern becomes evidence — in a liquidation, in a dispute with a creditor, or where a court is asked to look past the separate personality.
It also sits badly with a director's statutory duties, which require acting in the best interests of the company. Using the company's money as your own is not obviously that.
See can a director be held personally liable for company debt and a director's duties under the Companies Act.
What does clean look like?
Simpler than people expect, and almost entirely a matter of setup rather than discipline.
Separate bank accounts. One for the business, one personal. Never the same card.
Pay yourself deliberately. A salary through payroll, a properly declared dividend, or a documented loan repayment — not an ad hoc transfer whenever you need money. See how to pay yourself a salary as a director.
Where the business genuinely bears a shared cost — a home office, a phone, a vehicle — claim the business portion properly with the substantiation to support it, rather than putting the whole thing through. See how to claim a home office deduction and can you claim your car as a business expense.
Reimburse rather than absorb. Where you pay a business cost personally, submit it as an expense claim. Where the company pays something personal by accident, repay it that month rather than letting it sit.
Review the loan account monthly. A balance reviewed monthly stays small. A balance nobody has looked at for three years is the R400,000 problem above.
Keep a logbook if a vehicle is involved. It is the only thing that substantiates the business portion.
What if it is already a mess?
Fixable, and worth doing before a bank, a buyer or SARS asks.
1. Establish the actual loan account balance. Go through the bank statements and separate what was genuinely business from what was not. This is tedious and it is the whole job.
2. Take advice on the deemed dividend position before doing anything else, because the remedy affects the tax outcome.
3. Clear it deliberately — repayment, a declared dividend, or additional remuneration. Each has a different cost, and the cheapest one depends on your circumstances.
4. Separate the accounts now, so the balance stops growing while you deal with the historic position.
5. Set up a proper drawings structure so there is a defined, correct way to take money out.
Do not simply reclassify personal expenses as business ones to make the balance disappear. That is a different and much more serious problem. See how to catch up on years of unfiled books.
Frequently asked questions
Can I pay personal expenses from my company account? You can physically, but it creates a debt to the company on your director's loan account, and an overdrawn loan account has tax consequences including a possible deemed dividend subject to dividends tax at 20%.
What is a deemed dividend on a director's loan? Where a company provides a loan or credit to a shareholder or connected person without charging interest at an appropriate rate, the shortfall can be treated as a deemed dividend in specie, with dividends tax payable by the company.
Why does mixing accounts affect my tax deductions? Because an expense is deductible only where it was incurred in producing income. Personal expenses fail that test, and where personal and business spending are mixed, the whole category becomes questionable in an audit.
Will a bank still lend to me if my accounts are mixed? Usually not on the terms you want. A profit figure polluted by personal spending does not tell the bank whether the business can service debt, so they discount the figures heavily or decline.
Does mixing money affect my limited liability? It can weigh against you. Where a company has been treated as an extension of the owner's personal finances, that pattern becomes evidence in a liquidation or a dispute, and it sits badly with a director's statutory duties.
What is the right way to take money out of my company? Deliberately — a salary through payroll, a properly declared dividend, or a documented loan account repayment. Not ad hoc transfers whenever cash is needed.
How often should I check my loan account? Monthly. A balance reviewed monthly stays small. One nobody has looked at for three years becomes a material tax problem.
How do I fix a loan account that is already large? Establish the actual balance from the bank statements, take advice on the deemed dividend position before acting, then clear it deliberately by repayment, a declared dividend or additional remuneration. Separate the accounts immediately so it stops growing.
Two bank accounts, and the problem never starts
Nothing on this page is difficult. It is all setup — one extra bank account, a defined way of paying yourself, and a loan account somebody looks at once a month.
Smartbook keeps directors' loan accounts reconciled monthly, flags the balance before it becomes a tax problem, structures how you take money out of the company, and produces financial statements a bank will actually lend against.
See monthly accounting plans →
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Last reviewed: 28 August 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. The deemed dividend calculation depends on the official rate of interest and the specific facts — take advice on any material loan account before acting. General guidance, not advice on your circumstances.
Primary sources: SARS — Dividends Tax · Income Tax Act 58 of 1962 · Companies Act 71 of 2008