Everyone has financial and tax responsibilities, but it is not required to run their business finances through a dedicated business account.
A personal bank account can be used for business transactions. But as your business grows, you may find difficulties in managing your account in the future.
A few things you must know:
- For accounting purposes and completing your HMRC tax return, you must keep things clear and simple. Proper calculations and record-keeping become difficult when personal payments get mixed up with business expenses.
- A business bank account gives a professional look. Clients prefer making payments to an account held in the name of a business.
- Most banks have terms and conditions that state that personal accounts cannot be used for business reasons. When a huge number of business transactions pass through the account, this can raise a red flag. Your bank may suggest you open a business account instead of using a personal account for business purposes.
When do you need a business account?
You must have a dedicated business account if you run either of the following business types:
- Limited company
- Limited Liability Partnership (LLP)
All business transactions of an organisation must pass through a business account rather than a personal account, according to UK law.
There are special legal formalities you must follow if you want to transfer money from a business account to a personal account (for example, to pay yourself a director's salary).
A business bank account is essential for a business because it helps to:
- Take electronic payment from customers
- Take a business loan
- Fulfil all banking needs of a business
Can you get a business bank account as a sole trader?
Sole traders can open business bank accounts in most high-street banks as some accounts have dedicated products only for sole traders.
As a sole trader, you must keep the following things in mind before applying for a business account.
- Business accounts charge fees i.e. monthly fee or a per-transaction fee, while many personal accounts are free.
- A business account doesn't provide much interest, but it does give you access to more advanced banking services.