As a sole trader, do I need a separate business bank account?

In this article, we look at the business banking options you have, depending on whether you are a sole trader (self-employed), or operating via a limited company.

Do I need a separate business account?

If you are running an incorporated business (a limited company or LLP), then you must set up a separate bank account as your personal and business finances are separate legal entities.

As a sole trader (or if you are in a partnership), your personal and business income are treated as one for tax purposes.There is no legal obligation to set up a separate account for any business income, although the terms and conditions for your current account may restrict its use for business purposes.

Although you don’t have to, here are many good reasons why you would still want to keep your business and personal banking separate.

Why have a separate business bank account?

1. Having distinct bank accounts will make it easier to compile your accounts. You don’t necessarily want to trawl through lines of personal transactions when trying to find out if a customer has paid an invoice on time.

2. Some banks will not allow you to use your personal account for business purposes. More likely than not, this is to ensure that you don’t escape paying a monthly tariff on your business transactions.

3. Most of the high street banks offer 12 to 24 months of completely free banking, so there will be no transaction charges until this initial period comes to an end. With challenger banks such as Tide and Cashplus now occupying a significant share of the banking market (2021), you might never need to pay ‘monthly fees’ ever again.

4. Unless you’re trading using your personal name, you will not be able to receive payments (including cheques) into the account. Many self-employed people trade under a business name.

5. If you have your own business account, it will provide you with an accurate impression of your cash flow, income and expenditure.

6. If you intend to receive electronics payments into your business, you will definitely need a separate merchant account. In fact, fewer businesses than ever can realistically operate these days without electronic payments.

7. If you have an account in the name of John Adams T/A Business Design Services, you should be able to receive payments into your business account under the name of “John Adams” as well as your business name.

8. A business account may offer other ‘extras’ which you need, such as access to a dedicated business manager who can advise you on financial matters. You may also be offered useful software and support services.

So, overall, if you are self-employed, you may well benefit from having a separate business account, even though you are not legally bound to do so.

How to find the best bank account if you’re self-employed

Read our complete guide to choosing the best banking provider – including examples – here.

Last updated - 1st February, 2020

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