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 dedicated 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 several 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 direct debits 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 completely free banking (see some examples below), so there will be no transaction charges until this initial period comes to an end.

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

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

6. If you intend to receive credit or debit card payments for your business, you will definitely need a separate merchant account.

7. If you have an account in the name of John Smith T/A Business Design Services, you should be able to receive payments into your business account under the name of “John Smith” 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, many self employed people will benefit from having a separate business account, even though you are not legally bound to do so.

You can find out more about your options in our dedicated business banking section.

Bytestart Limited

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