It usually shows up in the year-end accounts as one line: shareholder current account — debit balance. Your accountant circles it, or mentions it on the phone in a slightly careful voice, and suddenly a number you’d never really thought about becomes something you owe. If that’s where you are, you’re in very large company. Plenty of hard-working owners pay themselves by drawing whatever the household needs, and in a tough year the drawings run ahead of the profit.
The good news is that an overdrawn current account is fixable, and it’s far easier to fix while the company is still trading than after something goes wrong. This guide explains what it is, why it matters more in 2026 than it did a year ago, and the practical ways owners clear it.
What is an overdrawn shareholder current account?
Your shareholder current account tracks money moving between you and your company. When you lend the company money, or leave salary and dividends in it, the account is in credit — the company owes you. When you take out more than that, the account goes into debit, or “overdrawn”.
IRD puts it plainly on its shareholder current account page: an overdrawn balance means “the company is lending the amount of the overdrawn balance to the shareholder.” In other words, it’s a loan. You owe it back, just as a customer owes you for an unpaid invoice.
Common ways it happens:
- regular drawings with no shareholder salary declared at year-end, or a salary smaller than the drawings;
- paying personal costs — the mortgage, school fees, a car — from the business account;
- a profitable year followed by a loss year, where drawings kept going at the old level;
- taking money out to cover a personal emergency and never getting around to repaying it.
None of that makes you a bad operator. But it does create a debt with a few sharp edges.
Why it matters while the company is trading
While the balance sits there, the company has effectively given you a loan. IRD notes that if interest isn’t charged at a market level there may be fringe benefit tax or dividend implications, and if the company does charge you interest, that interest is taxable income to the company. Either way, there’s a tax cost to leaving it unresolved, and your accountant has to deal with it every year.
It also affects how the business looks to anyone reading the accounts. A lender, a buyer or a supplier offering trade terms will see an asset on the balance sheet that is really a debt owed by the directors. If the company is short of cash and owes IRD at the same time, that combination raises questions — covered in our guide on what lenders need to see from a business in trouble.
What happens to an overdrawn current account in liquidation?
This is the part many owners don’t realise until it’s too late. When a company is liquidated, the liquidator’s job is to gather in everything the company owns and pay creditors. Money owed to the company by its shareholders is one of those assets.
So the liquidator will usually send a formal demand asking you to repay the balance. In many small company liquidations the biggest creditor is IRD, which means you can end up personally repaying money that then goes to IRD anyway — after a liquidation, fees and a lot of stress. Depending on your circumstances, a liquidator may agree a repayment arrangement or a settlement, or may issue court proceedings if nothing is resolved.
Some owners try to fix it at the last minute by declaring a large dividend or backdated salary. That’s risky. Under the Companies Act, a dividend can only be paid if the board is satisfied the company will pass the solvency test immediately afterwards, and a distribution made when it doesn’t can be recovered from shareholders. Last-minute paper fixes also tend to attract exactly the kind of scrutiny you’re trying to avoid. Our guide to directors’ duties when a company is struggling covers the wider picture.
If you’ve already been told liquidation is the only option, read before you talk to a liquidator first. An overdrawn current account is one of the clearest reasons to look hard at the alternatives.
The 2026 change: removal from the register no longer makes it disappear
Until recently, some owners assumed that if the company simply stopped trading and was struck off the Companies Register, the current account balance quietly went away with it. The Government has closed that door.
Announced in Budget 2026 and enacted in the Taxation (Budget Measures) Act 2026, a loan from a company to a shareholder that is still outstanding six months after the company is removed from the register is treated as the shareholder’s taxable income. It applies to companies removed on or after 4 December 2025, and the rule reaches loans to shareholders, directors and their close relatives in closely held companies. The Beehive release summed it up: “Six months after a company has been liquidated, or otherwise removed from the Companies Register, any outstanding loans it previously made to its shareholders will be taxed as income.”
In practical terms:
- Liquidation still means the liquidator can demand repayment.
- Removal from the register, by liquidation or otherwise, now starts a six-month clock, after which any unpaid balance becomes a personal income tax bill.
- Doing nothing is no longer a way out. The debt either gets repaid, or it gets taxed.
That makes the question “how do I clear this while the company is alive?” a lot more urgent. Worried about what that means for you? Tell us what’s going on — it takes about a minute and there’s no credit check when you first enquire.
Four ways to clear an overdrawn current account
Every situation is different, and your accountant should run the numbers. These are the options owners most often use, alone or together.
| Option | How it works | Watch out for |
|---|---|---|
| Declare shareholder salary | The company records a salary to you at year-end, which reduces the debit balance | You pay personal income tax on it; it needs profit to be deductible and sensible |
| Pay a dividend | The company distributes retained profits, credited against the balance | Only if the company passes the solvency test; imputation credits and tax still apply |
| Repay it from personal funds | You transfer money back to the company | You need the cash — which is usually the problem |
| Refinance it personally | You borrow against property you own and repay the company | Your home or other property is on the line, so the plan must be realistic |
The first two change how your drawings are taxed. They’re the right answer when the company has actually earned the money and can afford to pay it out. The last two put real money back into the company — and that’s where things can change quickly for a business that’s also under pressure from IRD or creditors.
Why refinancing the current account can take pressure off the business
Here’s the part that surprises people. When you repay your current account, the company gets cash. If the company also owes IRD for GST or PAYE, or has a supplier threatening action, that cash can go straight to the problem.
So a personal loan secured on property can do two jobs at once: clear your debt to the company, and give the company the money to settle its most dangerous creditors. The company’s balance sheet looks healthier, the tax cost of the overdrawn account stops, and you’ve removed the scenario where a liquidator comes knocking for the balance later.
It isn’t right for everyone. Using your home as security is a serious step, and it’s worth reading using home equity to save your business and talking it through with your partner first. But for a viable business with a temporary problem, it’s often a much better outcome than letting the company fail and facing the same debt personally anyway. If IRD is the main pressure point, see how refinancing IRD debt works.
A worked example (illustrative only)
Two directors run a Nelson landscaping company. After a strong 2024, a wet year and a slow building market cut their work, but household costs didn’t shrink. By 31 March their accountant tells them the shareholder current accounts are overdrawn by a combined $140k, and the company is also behind on GST.
A dividend isn’t an option — there aren’t enough retained earnings, and the company wouldn’t pass the solvency test. Declaring a larger salary would create personal tax they can’t pay. Their accountant mentions that if the company were wound up, the liquidator would demand the balance, and that under the new rules it would eventually be taxed as their income anyway.
The directors own their home with reasonable equity. They arrange a property-secured loan in their own names, repay the current accounts, and the company uses the funds to clear the GST arrears and catch up with a key supplier. The loan has a clear exit: refinance back to a bank once two clean years of accounts are in, helped by a proper PAYE salary from now on. The company keeps trading, and the balance that was quietly growing is gone.
Stopping it from happening again
Once it’s cleared, a few habits keep it that way:
- Pay yourself a regular shareholder salary through payroll, or agree a set monthly drawing with your accountant based on realistic profit.
- Keep personal costs out of the business account. It makes the books cleaner and the current account easier to track.
- Check the balance quarterly, not once a year. A number you watch is a number you control.
- Set aside for personal tax. Drawings feel like free money until the terminal tax bill arrives.
If the company is already under strain, pair this with a short-term cash plan. Our alternatives to liquidation page shows how funding and a plan can often keep a company alive.
Let’s clear it while you still have choices
An overdrawn current account feels awkward to talk about — it’s money you took from your own company. We hear about it all the time, and we never judge. What matters is that you’re looking at it now, while the company is trading and the options are wide open, rather than after a liquidator or a six-month tax clock has taken some of them away.
Here’s what happens when you reach out:
- It takes about 60 seconds to tell us your situation.
- There’s no credit check when you first enquire, so your credit file isn’t touched.
- We don’t send your details to a pile of lenders. No spray-and-pray, and no phone that won’t stop ringing.
- A real person looks at your circumstances — the company, the current account, any property — and calls you to talk it through.
Please fill the form in accurately, including roughly what the current account balance is and what else the company owes. The clearer the picture, the faster we can match you with the right option first time.