A self-employed bank account can mean one of two things: using a personal account for business conducted when self-employed, or using a business account instead.
For sole traders, business bank accounts are not a legal requirement. Using your personal bank account for business transactions is fine as far as HMRC are concerned, as personal and business income is treated as one.
Limited companies, on the other hand, do not share the same luxury. As a legal entity, money it generates must be kept separate to the business owner or director. Although, this may be the route to go for all self-employed workers going forward.
Below we explain why that could be the case and help simplify the world of business accounting.
Do I need a business bank account as a sole trader?
Not legally, no – although you would be unlikely to benefit from the alternative. Your bank may even have a clause in its contract which restricts you from depositing income outside of personal use.
HMRC will also need to see how much money your business account has made. If it has become somehow mixed up with your personal account, it will be difficult to accurately ascertain not only your earnings but also any allowable expenses you may wish to claim.
Can a sole trader use a personal bank account?
A sole trader can use a personal bank account, but setting up a business account can have a number of benefits. It may help you look more professional, allowing you to provide your company name for the account on any invoices.
In addition, as a sole trader, you may be subject to less interest as a result of switching. However, business accounts for the self-employed typically have higher fees – up to £5 to £15 a month in some cases.
How do business bank accounts work?
Not only will you be expected to pay these monthly fees, but transactions such as paying in cash over the counter or cashing in cheques also incur certain account fees. These charges are normally wavered during a grace period as you start your relationship with the bank.
Be conscious of these fees as you shop around for a self-employed bank account. If you can’t guarantee that you’ll be able to afford them later down the line, then signing up carries a risk.
If you can afford the charges, your bank will often justify the expenditure with free business advice, dedicated business bank managers and discounts on business services. Be sure to seize the opportunity to use them when required.
What are the benefits of a business account?
Firstly, opening a business account can save you huge amounts of time. According to Barclays, UK freelancers and sole traders spend 15 days a year sorting business expenses from their personal accounts. This is removed the moment you set up a separate bank account for self-employed income.
Secondly, you’ll have access to business finance. It is unlikely that a bank will accept a request for business-related lending if you’re only with them in a personal capacity.
Finally, you’ll have improved visibility of your cash flow. You’ll easily recognise when you’ve been paid or have paid suppliers. Plus, you may be less likely to misclaim some expenses as they will all be in your business bank account, giving you greater clarity.
Are there any requirements to open a business bank account?
There are certain documents you will need in order to open a business account in the UK. Usually, you will have a significant amount of this information within your business plan if you’re hoping to secure business finance.
However, if you’re simply applying for an account, these are the details you’ll need to have to hand:
- Proof of ID – Passport, photo driving licence or national ID card.
- Proof of address – Council tax statements, utility bills or bank statements that have been posted to your home.
- Full business address – Your home or place of work, including the postcode.
- Contact details – All relevant means of reaching you.
- Estimated annual turnover – As best as you can forecast.
- Companies House registration number – This is only relevant for limited companies and partnerships.
- Depending on your bank, you may be asked to bring in evidence of your banking history and credit score.
How can I apply for a business bank account?
The majority of high-street banks will offer a business account for sole traders and small business owners. It’ll be down to you to weigh up the benefits of each and choose the one that suits your operation best.
It isn’t as simple as choosing the bank with the lowest fees. Be sure to check customer reviews and see whether or not the bank has an app which means you can access them from wherever you are.
For some individuals, it pays to choose a bank that’s located close by. If you foresee yourself needing to regularly meet with your bank manager, larger branches with parking access can be invaluable.
How GoSimpleTax can help
Hopefully, now you have determined whether you need a business bank account.
The next step to streamlining your finances even further? Using GoSimpleTax. The work that your business account does to highlight any expenses you could claim is made even easier with our software. We’ll alert you to areas where your tax liability can possibly be reduced even further, before helping you submit your Self Assessment tax return.
Last updated 12th January 2020.