Business account vs personal account for the self-employed

So, you’ve opened a business and are now wondering – can I use a personal account for business?

Whether you’re legally obliged to have a business bank account depends on your business structure. That being said, having a business bank account can be a good idea for most businesses, even freelancers and sole traders.

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Business account vs personal account

First, let’s consider what business accounts and personal accounts have in common:

The main difference is that business bank accounts usually charge monthly fees, plus a range of fees for certain transactions. Lots of banks usually offer an initial fee-free period before charging however, so be sure to shop around before choosing one.

Ultimately, a business account will usually be the best option for your business as it lets you keep your finances separate.

Many banks offer features that personal accounts don’t have access to, including:

  • business finance

  • specialist business banking managers

  • the ability to take payments from customers

  • online tools and software to help you run your business

Can I use a personal account for business?

It depends on whether you’re operating as a sole trader or setting up a limited company.

As a sole trader, you’re not required by law to have a business bank account. 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.

Keep in mind, though, that your bank’s terms and conditions may prohibit you from using a personal account for business transactions. There are other reasons to keep your personal and business finances separate, too.

As a limited company is a separate legal entity, it needs to have its own business bank account. Limited companies shouldn’t be using a personal account for any business expenses.

If you’re not sure which business structure to pick, check out the difference between a sole trader and a limited company.

Business bank account vs personal for sole traders

As mentioned above, even if you’re not legally required to have a business bank account, there are a number of reasons why setting one up is a good idea.

Some banks offer specific business bank accounts for sole traders and startups. This gives you the benefit of separating your finances, but often with a lower monthly fee that’s tailored to the services you need.

Here 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 takes time, so having separate bank accounts helps you manage your finances more efficiently.

It also makes keeping accurate business records easier in general and will save you time when bookkeeping.

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.

Do I need a business bank account for a limited company?

If you’ve set up a limited company you’re required by law 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.

Do I need a business bank account if self-employed?

Beyond the legalities and your bank’s terms and conditions regarding using a personal account for business, think about these questions:

Do you have employees, or plan to in the near future? If you’re a sole trader managing your own payroll accounting, this can become very complicated without a separate account.

Do you need to apply for a loan? While not essential, having a business account might help if you want to apply for business loans and other forms of finance.

Do you want expert business support? Many banks have separate departments that manage services for businesses. By using a personal account, you’ll be missing out on this expertise.

As hinted at, you might need a business account that accommodates your growth plans. For example if:

  • you’re planning to incorporate your business as a limited company

  • your business is processing a lot of transactions

  • your business income and expenses are getting complicated and you’re concerned about accurately completing your tax return

  • you want to take out a business loan or get a business credit card

  • you want to take card payments from your customers

What do I need to open a business bank account?

When choosing your bank, you’ll first want to think about whether you want an account that has physical branches or if you’re happy with a digital bank account.

Once you’ve done your research, opening a business account online can take between one and four weeks while the bank carries out a range of checks. You’ll just need a few personal details and business documents to get started. If you go completely digital, opening a business account can be a lot quicker.

This is the information that you’ll usually need to open a business bank account:

  • proof of ID

  • proof of address

You may also need to give details about your business:

Check out our article on the the best business bank accounts for a comparison of accounts offered by some of the major banks, including information about the fee-free periods.

This article does not constitute legal or financial advice. Please speak to your bank or seek professional help if you’re not sure whether you need a business bank account.

What’s your experience of business banking? Tell us in the comments.

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