Sole Trader, business Bank Account or no?

A sole trader in the UK doesn’t legally need to have a business bank account.

It is fine to use your personal bank account for both business and personal transactions or you can set up a second personal bank account to use for your business.

Here’s a few reasons why it is a good idea to have a business bank account.

1. 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 finds our 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

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. In the event you get a HMRC inspection it would definitely be the first question they ask and they’d highly recommend a business account

3. Simplify your admin, a business bank account help with reporting to HMRC, it also makes it easier to manage your business cashflow.

4. Build your credit rating

A business bank account will build up your businesses credit rating, which is always a good thing.

5. Business Presentation

An account in your business is good for business presentation. It gives a professional look to your business payments Some customers/clients are not keen on paying into personal accounts.

I have a limited company: do I need a business bank account?

If you’ve set up a Limited company in the UK you need 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.

Business bank account vs. personal bank account

Like a personal bank account, a business bank account can offer cash and cheque handling, a debit card, and an overdraft. As with your personal account, you’ll be able to set up direct debits and standing orders. Having a business account also paves the way for your business to borrow money, get a business credit card, and take card payments from customers.

The main difference between a personal and business bank account is that you’ll usually pay fees for a business account. Most business bank accounts charge a monthly fee (starting at around £5 to £8) and then additional fees for certain transactions like depositing cheques. However, many banks offer an initial fee-free period of one to two years when you first open the account.

Can I use my personal bank account for my small business?

As we’ve mentioned above, if your small business is a limited company you’ll need to have a business account. If not, there are a few factors you might want to consider:

  • do you have employees, or hope to have  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 a loan.