26.1.2022

Do I Need a Business Bank Account If I'm Self-Employed?

Written by Danielle Collard

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Perhaps you’ve recently started your business, or have seen your business growing in recent times. Or, maybe you’ve been using your personal bank account to run your business for some time and wonder if it’s time to take the next step.

Whatever your situation, many business owners have different opinions on whether you need a business bank account, or if you’ll be okay using the same bank account for business and personal finances. To help make this a little easier for you, we’ve compiled some of the key things to consider when thinking about this important question.

 

Do you need a business bank account? What does the law say?

Legally, sole traders do not need to have a business bank account. Anyone that owns their own business as a sole proprietorship is self-employed, regardless of whether they have employed others or not, and is allowed to run their business through their own, personal bank account. This is because the law views sole traders and freelancers as private individuals that are accountable for all business risks and expenses. 

But, if you have a larger business, you may be registered as a limited company. If this is the case, then legally you must have a business bank account which needs to be entirely separate from your personal account. 

Limited companies have certain responsibilities that sole traders do not have, and company information (including financial and tax details) will be publicly available on Companies House[1]. However, sole traders pay a larger rate of income tax than limited companies.

If you are a sole trader, then it is your choice whether or not to get a business bank account, so here are some points to consider:

 

Simpler money management

Even if you don’t need it, should you get a business bank account if you’re self-employed? Well, if your business processes a large number of transactions (for example, a retail business), then having your personal transactions mixed in with your trading will make managing your finances much more difficult. This could lead to you failing to notice client bills that haven’t been paid or duplicate payments to suppliers. 

On the other hand, if yours is not the kind of business that makes a large number of transactions, or if the transactions your business makes are regular and of a similar amount, separating the personal and professional shouldn’t be too difficult.

 

Tax headaches

Regardless of whether or not your business is profitable enough to benefit from going limited, accurate bookkeeping is far easier when using a business banking account. When you come to do your self-assessment, it will be easier to recognise any tax deductibles or allowable expenses that could reduce your tax bill. Once again, the question you need to ask is whether or not you’ll find it difficult to recognise the business transactions you’ve been making, especially when completing your self-assessment as a sole trader.

For managing your business finance and easing those tax headaches, an Epos Now system with app integrations to link your EPOS to accounting programs like Sage or Xero is an excellent way to stay on top of your bookkeeping. 

Finance statistics and extra resources

These days, most banks provide their customers with detailed statistics on where they’re making money and breakdowns of their expenses. With a business bank account, the data and resources your bank provides you with will be even better. So not only will you be able to monitor profit in different areas and see which expenses you need to cut down on, but you’ll also be provided with invoicing tools and accounting software. Another extremely useful function gives you the opportunity to sub-divide your account to put money aside where it’s needed, for instance, to have a certain income stream allocated to paying your wage bill.

 

These are features you simply will not have if using a personal account. So, if you have a larger wage bill or your business finances have a larger number of moving components, then a business bank account may be a solution for you.

 

A professional look

Even if you have a small business that shares your name or goes by the “Smith & Sons” style moniker, many customers will expect those they trade with to have a dedicated billing account and will recognise a bill being paid to a personal account. If you’re freelance, having a separate, professional credit card could still help you get business. Some clients will even be less likely to continue trade with those using personal accounts as they might feel they are not working with a professional.

A dedicated business bank account makes a statement. It declares that the business is serious and ambitious. Given that a limited company legally must have its own account, a business bank account says that the company plans to grow, becoming profitable enough that the business account will be necessary, even if it isn’t just now, or is still getting its feet off the ground. A business account is a sign of positive intent and care for your professional reputation.

 

What else should I know?

  • Some banks will have terms and conditions that state that personal accounts can’t be used for business. This usually depends on the size and turnover of the business, but in extreme cases, a bank may close your account if too much business is being done through this personal account. If this concerns you, it’s a good idea to read the terms and conditions for your current account.
  • If you’re running your business through a personal account, you may find it difficult to get a business loan as most banks will require a business bank account to consider loan applications. However, Epos Now Capital is a great option if you’re looking for business financing solutions.
  • While personal accounts are free, there is a small monthly fee for maintaining a business account. This is usually in the region of £5-10, and while interest on most bank accounts is negligible, business accounts accrue no interest whatsoever. For most, this small fee is of no concern, but if your business is very new, or something you’re doing part-time, this may be a point of consideration.

 

Do your research

Business bank accounts are profitable for banks, so they are competing for your custom. As such, the banks all have different offers to try and pique your interest, and some will appeal to you more than others. 

If you’re not sure whether you want to open an account or not, take a look at some of the deals available and see what you think. For example, Santander2 is offering startups their first 18 months for free, Barclays3 discounts the first year[2][3]. Natwest4 offers a dedicated relationship manager for businesses with an eligible turnover and can switch your current account to a business account in 7 days[4].

 There are an endless number of options out around, but Business Financing5 has a useful guide for helping you make comparisons[5]. Making the right choice could have a big impact on your business, so shop around and make sure you’re as informed as possible when you make your decision.

All in all, business bank accounts have an awful lot to offer, but whether you really need one or not depends on the kind of business you have and where the business is at in its journey. A new business might not have enough clients for it to be absolutely necessary, but you may want one anyway to save you time and help you stay organised. In the long run though, if you’re ambitious enough, then a dedicated bank account is essential.

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