It’s a question that many people ask before starting their own business or launching a freelance career.
The answer, at least as far as UK company law goes, is clear:
If you set up as a sole trader (‘self-employed’) you can use your personal bank account.
On the other hand, a limited company must have a separate business account, as it is a distinct legal entity. There is a legal requirement to keep your personal and business finances separate.
However, even if you don’t have to open a business account, there are plenty of reasons why you should consider doing so!
Using your personal account for business
As a sole trader, you’re allowed to use your personal account for business transactions and can even open a second personal account exclusively for your business. On the face of it, this may seem the easier – and cheaper – option but look again at the terms and conditions of your personal account.
Chances are that somewhere it is stated the account is designed for personal use only. If suddenly there’s a lot more activity including transfers and deposits, the bank could require you to open a business account. This can vary from bank to bank.
For example, if you’re a web designer or freelance tutor and carry out relatively few transactions in a month (fewer than 20 say), your bank may be fine with you using your personal account.
On the other hand, if you’re an Amazon or eBay seller generating multiple transactions, your bank will certainly notice and is likely to react. Some may even threaten to close down your existing account unless you open one for business.
Keeping it simple
Whatever your business structure, you’ll have to complete an annual tax return. You need to let HMRC know how much money the business has made while deducting allowable business expenses such as for office equipment and travel, to work out your tax liability.
This is a lot easier to do if you operate a dedicated business account rather than have personal expenses and business costs mixed up in the same account. Keeping a separate business account will also allow you to see at a glance what you’re spending, how well you are doing, and manage your business more effectively.
Having a business account can help to make you feel and appear more professional. Clients like to know they are paying for goods or professional services by paying into your ‘trading as’ (t/a) business account rather than one in your own name. A business account will also help you to maintain a separate business identity.
Features of a business account
The main difference between a business and personal account is that while the latter may be free, you’re likely to be charged a monthly fee for operating a business account with additional fees for some transactions. The good news is that you may be able to offset some of these charges against profits for tax purposes.
A business account is also likely to offer a wider range of services than a personal account, such as a business credit card, taking card payments from customers and facilitating business loans.
Choosing the right business account
While you may be tempted to open a business account with your existing bank, it’s advisable to shop around for the best deal and choose the one that’s right for your business.
- If you expect to make lots of transactions, look for an account that charges low fees for online banking.
- Some banks offer in-credit interest which is worth bearing in mind if you expect to keep a healthy balance in your account.
- A number of high street banks also offer free banking for new business accounts for a limited period, typically up to two years.
- Find out what the charges are when this free period expires as it’s not as straightforward to switch a business account as it is a personal one.
- Do you value face-to-face interaction with your bank? If so, look for a bank that has a local branch where you can get help, for instance, with making foreign or complex transactions.
Special Offer – Tide Business Bank Account (+£50 just for opening an account)
If you’re looking to open a free business account with the minimum fuss, Tide is worth exploring. As a Limited Company Help visitor, Tide will credit your account with £50 – with no catches at all.
All you need to do is open the account and fund it with at least £1. Just make sure you quote our unique code – ‘COMPANY’ – to qualify. You will also receive 1 year of free transfers thrown in.
The application is made online (without the need for a credit check) and, if successful, you can have a business account up and running within 24 hours.
Popular with small businesses, other features include free bank transfers, no monthly fees and 24/7 access to your account.
ANNA Money – (almost instant) current account for businesses
Another popular alternative to the old high street names, ANNA is now used by over 100,000 small businesses.
You can have a new current account set up in under 10 minutes, including an instant payment link, so customers and clients can pay you right away, without any delay.
You can connect your business bank accounts to your ANNA account too, and issue professional invoices from your account.
In fact, with your debit card and app, you no longer need to visit a branch, or fill in any forms.
You can find out more and set up an account right away here.
Cashplus Business Go – fast set-up, FSCS protection, FreeAgent integration
Cashplus is a fully regulated British bank, with over 1.6m customers. It is one of the fastest growing challenger banks in the UK.
You can apply for an account and get your account details within minutes, with no need for a credit check.
Your Cashplus account links seamlessly to accounting software such as FreeAgent and Xero.
You can link your other bank accounts to your Business Go account via Open Banking.
And your deposits are fully protected by the Government’s FSCS scheme (up to £85,000).
Find out more and apply for an account here.