Do I Need a Separate Business Bank Account
As a small business owner, there are times when it can be challenging to make the right decisions for your business. One of those tough calls is whether or not you need a separate bank account specifically used for your business funds. It can be tempting to think that having one account with personal and business finances will simplify things, but taking this route could do more harm than good in the long run.
In this blog post, we’ll cover why getting a separate business bank account if you have a small business might just be the best move for you and your company.
Self-Employed Bank Accounts – Do I need a separate business bank account?
As self-employed individuals, it is not legally necessary to open a business bank account; however, it can become increasingly easier to handle your finances if you do. A business account provides a place to store funds, separate from any personal bank accounts you may have. This makes it easier to organise and track expenses and make other financial calculations.
Limited Companies Bank Account
As a limited company, having a business bank account isn’t just practical and wise – it’s legally required. Are you doing your tax return? YouYou’lled to be able to provide evidence of your limited company transactions from your business bank account. As a Limited company is a separate legal entity, it is required to have its own business bank account.
This account is distinct from anything else you may have for personal use – such as savings or current accounts – and helps protect yourself and the limited company by providing clear records of limited company-specific transactions.
Many banks will offer limited companies special advantages, such as favourable interest rates, when opening these kinds of accounts, making them an even more attractive option. So if you’re a limited company owner, take the time to research these types of accounts to make the most out of managing your limited company’s financials.
Business Bank Account Benefits
There are many advantages of having a business bank account, but here are our top 10:
- Keeping track of finances – It is easier to see all your business transactions in one place. You will also know from the balance how much money the business has available.
- Online Accounting Software – Modern cloud accounting packages include online bank feeds if you choose the right software. It can save lots of time, as the bank transactions are imported directly into your software, and if set up correctly, you may only have to click one link to post the transaction to the accounts. Some of the best accounting packages on the market are Xero, Quickbooks and Sage.
- Claiming Expenses – It is important to claim all your business expenses. Putting all your costs through the business bank account will ensure that it is all included. There may also be additional expenses to claim, e.g. mileage and other sundry expenses. Further information is available in the business expenses section.
- Bank Charges – Most banks offer free banking for new businesses for either 12 or 18 months. You can claim bank charges through the business if you have a separate business account. But you can’t claim if it is a personal account.
- Makes it easier for HMRC inspection – HMRC do inspect for VAT and taxation. If you are unlucky enough that they choose you for an inspection, it is easier to prove transactions if they are all in one account. Mixing your transactions with those of the business will make it much harder.
- Save money on Bookkeeping and accountants – If you employ the services of a bookkeeper or accountant, it may take them longer to plough through your paperwork, trying to confirm if a transaction belongs to the business or not.
- Access to business finance – If you only have a personal account, it may be very hard to get finance approved. Having a business account will allow credit history to build up, making it easier for banks to approve loans and overdrafts.
- To look professional – Having dedicated accounts means that clients may make payments to your business name. If you are making a payment to a supplier, it is also easier for them to confirm who the payment is from.
- Banks terms and conditions – In your bank’s terms and conditions, there may be a clause that states it is for personal transactions only.
- Accepting Credit and Debit card payments – As a business, you may need to accept debit and credit card payments. A few apps allow this, but most will need a business bank account.
What should I consider when choosing a Business bank Account
There are several options for choosing the best bank for your needs. Some people prefer to use the same bank for both personal and business needs. It may not be the cheapest and best option.
Money saving expert is a great website to see the best options for a bank account. They list all the best banks and options available. Many will have no banking charges for a set period for a new startup.
Below is a list of things to consider when choosing a business bank account
- Business Advisor – A few banks offer a business advisor, it is worth seeking their advice if it is available.
- Overdraft – Many companies need to have a business bank account with an overdraft. This is so the company can continue operating if it does not have enough money to cover all its expenses. For some accounts, this service is automatically provided. For others, you will need to apply for it.
- Banking Fees – Check the monthly fees as well as the transaction charges. Charges do vary from bank to bank.
- Accounting Software – some business bank accounts offer free accounting software. For example, the Royal Bank of Scotland and Natwest provide a plan with FreeAgent.
- Business Resources – Check out any business resources the bank may offer. This could include workshops, webinars or even discounts on business services.
- Online Banking – Many banks now offer online banking and mobile apps
- New start-up deals- Look out for special start-up offers. These might include a period of free banking or cashback on certain products and services.
- Customer Service – Check out customer reviews and ratings. You want to be sure that the bank you choose has good customer service and is there when you need them.
How to Open a Business Bank Account
Most Busines bank accounts have an app available which you can use to apply, the other options is via their website or go into branch.
The bank will need information to prove the sole-trader or directors of a limited company. This includes ID, Proof of address and their company registration details
Once the application is in place and you are accepted, you will be issued with a sort code and account number for your business bank account. You will usually have to open an account in person as this allows banks to check identity documents
The bank may have other required information, so it is worth checking when making an appointment.
5. Tips for managing your business finances with a business bank account
1. Have a separate bank account for your business
This will help to keep your personal and business finances separate. This will also make it easier to track your expenses and income.
2. Keep accurate records of your income and expenses
This will help you to stay on top of your finances, as well as provide evidence for tax purposes.
3. Use accounting software with a bank feed
Accounting software will help you to keep track of your finances and will save a lot of time as all the bank transactions are brought into the software.
4. Monitor cash flow
Make sure that you keep track of your cash flow and have a plan in place. Make a cash flow forecast, we have a free template available.
5. Have a budget
Having a budget will help you to stay on top of your finances, allowing you to plan ahead and make sure that your business is on track.
6. Have an emergency fund
Having some extra cash available will help you to continue running your business if something unexpected happens
7. Pay suppliers on time
Paying suppliers on time will help to protect your credit rating, as well as avoiding any late payment fees.
8. Use a debit card for company transactions
This will help you keep track of what is being spent on the company card and can be helpful when reconciling accounts at the end of the month
9. Direct Debits
Set up direct debits for regular payments such as insurance, rent, tax and more. This will help you make sure that these payments are made on time and avoid any late fees.
10. Mobile Banking App
Most business accounts have an associated app that allows you to manage your account on the go. This is a great way to keep track of your finances.
FAQ on Business Bank Account
Can I use my personal bank account for my business?
If you are self-employed, either as a sole trader or partner you can use your personal bank account. Using your personal account makes it harder to track transactions but it is possible.
How can I claim expenses made from my personal account?
If you have a separate account for business, but make payments for some items from your personal account, you can claim these back using an expense claim form.
What is the best bank account UK?
As each business is different, there is no one solution fits all. Complete your own research to find the best account for the business.
Business Bank Accounts Conclusion
Starting a business can be difficult, but having the correct tools in place can make the process much easier. In this article, we have outlined what you need to do to set up a business bank account and some tips for managing your finances.
Having a separate bank account for your business will help to keep your personal and business expenses separate and make it easier to track your income and expenses. using accounting software with a bank feed will save time as all transactions are brought into the software. If you have a limited company you can’t use your personal bank account as the business its a separate legal entity.
The main advice is to do your research and find the best banking options for your business.
For further details about a separate business bank account, read about business banking.
