Simply Business – business insurance made for you
Whether you’re legally obliged to have a business bank account depends on your business structure, but having a business bank account can be a good idea for most businesses, even freelancers and sole traders.
When you’re considering whether to open a dedicated business account, the first thing is to understand if you’re legally obliged to do so. This depends on whether you’re operating as a sole trader or setting up a limited company.
If you’re not sure which business structure to pick, check out our article on the difference between a sole trader and a limited company.
Get your free guide to why you might need a business bank account
Download your free guide to the different situations in which you might need a business bank account. Get access to expert hints and tips in the click of a few buttons.
Your email address will be used by Simply Business to keep you posted with the latest news, offers and tips. You can unsubscribe from these emails at any time. Simply Business Privacy policy.
Do I need a business account as a sole trader?
As a sole trader in the UK, you don’t have to have a business bank account, but you might choose to.
Legally, you can use your personal bank account for both business and non-business transactions or you can set up a second personal bank account to use for your business.
However, there are several reasons that setting up a business account may still be a good idea. These are five reasons why you might consider opening one.
1. Your bank’s terms and conditions
It’s likely that somewhere in the small print of your personal bank account documents it says that your account should be for personal use only.
If your bank realises that you’re using the account for your business – particularly if there’s a lot of money passing through or you’re handling a lot of cash and cheques – they may force you to close your account and tell you to open a business account.
2. To keep things clear for HMRC
When you complete your tax return, you need to tell HMRC how much money your business has made. You can subtract certain allowable expenses (travel costs and office costs, for example) to calculate your taxable profit.
If your personal costs are mixed up with your business costs because you use one bank account for both, it can be difficult to make these calculations accurately.
3. Simplify your admin
Not only does having a business bank account help with reporting to HMRC, it also makes it much simpler for you to manage your business budget and forecasts.
Sorting out which expenses are personal and which are for your business can take time, so having a separate bank account can help you manage your business finance more efficiently.
4. Build your credit rating
Having an account in your business name can help you if you need to apply for a business loan in the future. It helps to build up a credit history for your business, which many banks will look for when considering if you’re eligible for business finance.
5. To look professional
Having a dedicated bank account can make your business appear more professional, as clients can make payments to an account held in your business name rather than your own name. Some clients don’t like making payments into personal accounts.
I have a limited company: do I need a business bank account?
If you’ve set up a limited company in the UK you need to have a business bank account as your business is legally a separate entity. You shouldn’t be using a personal account for any of your business expenses.
Business bank account vs. personal bank account
Like a personal bank account, a business bank account can offer cash and cheque handling, a debit card, and an overdraft. As with your personal account, you’ll be able to set up direct debits and standing orders. Having a business account also paves the way for your business to borrow money, get a business credit card, and take card payments from customers.
The main difference between a personal and business bank…
Read More: Simply Business – business insurance made for you