Do you need a business bank account as a sole trader?

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:

  1. Take electronic payment from customers
  2. Take a business loan
  3. 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.

  1. Business accounts charge fees i.e. monthly fee or a per-transaction fee, while many personal accounts are free.
  2. A business account doesn't provide much interest, but it does give you access to more advanced banking services.

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