Can I use my personal bank account for business?

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 run a limited company or an LLP

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.

The same rule applies to Limited Liability Partnerships (LLPs).

If you are a sole trader or partnership

If you set up as a sole trader (‘self-employed’), you can use your personal bank account for your business.

This is because HMRC treats you and your business as a single entity for tax purposes.

If you’re a member of a general partnership, even if there’s no need to set up a dedicated business account, using the personal account of one of the partners may cause complications.

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.

It is likely that somewhere, it is stated that the account is intended 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 your existing account unless you open a new one for business.

Keeping it simple

Whatever your business structure, you have to complete an annual tax return. Sole traders and partnerships do this via the self assessment process.

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.

These days, most businesses use online accounting software, which can be integrated with your bank feeds. If your personal and business transactions are mixed up, you won’t be able to make use of these useful integrations.

More business-like

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.

Choose 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 ‘free’ bank accounts charge for transactions over a certain number. Make sure you know what ‘free’ means in reality.
• Some banks offer in-credit interest which is worth bearing in mind if you expect to keep a healthy balance in your account.
• Several 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 need to pay in cheques or cash?
• 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.
• Does the bank integrate seamlessly with popular online software such as Xero?

Popular free bank account providers

Tide Business Account (£50 cashback)

Tide provides a quick online sign-up and a straightforward account with no monthly charge on its standard plan. Apply with the code “COMPANY” to receive £50 cashback. Read our review here.

Zempler Bank – Business Go

Zempler is a UK-licensed bank offering a free account with no ongoing fees. Your funds are covered by FSCS protection (up to £120,000), and you also get built-in fraud checks plus connections to accounting tools such as Xero.

ANNA Money Business Account

ANNA Money offers a fast online setup in under 10 minutes with no monthly fee on the Pay As You Go plan. It includes powerful admin tools and bookkeeping if you require it. Read our review here.