Do you need a dedicated business bank account?

Once you’ve set up a new business, it is important that you have established banking facilities before you commence trading. The question is, can you use your personal bank account or are you required to create a small business bank account?

The answer wholly depends on the business structure in which you are trading. Are you self -employed/ a sole trader, or are you operating as a limited company?

Sole Traders / Self Employed Banking

When working as a sole trader, you are your business. Your personal and business transactions and affairs are treated as one for the purpose of tax. Theoretically, you can use your personal bank account for business purposes if your bank allows you to do so.

However, in reality, the majority of banks will insist you open a separate business account, particularly if you are processing a high volume of transactions monthly. Unsurprisingly, you can therefore expect to pay a fee per month for the privilege.

The advantage of having a separate business account is it will enable you to easily split your personal and business expenses. This is especially beneficial when it’s time to complete your annual self-assessment as it will aid in the reconciliation of your accounts.

Furthermore, your business will appear significantly more professional by having a dedicated bank account. You can simply use a “Trading As’ (T/A) name so that all payments are made to the business name as opposed to your personal name.

Limited Companies Banking

Limited companies are separate legal bodies from their shareholders and directors, unlike the structure of a sole trader business. The personal income, expenses and financial activity of a limited company owner are distinct from the finances of the businesses they own.

As a limited company owner, you are legally obliged to open a dedicated business account, whereas a sole trader or those self employed can legally use their personal account for business transactions.

Choosing a company bank account

We recommend that while searching the market for the most suitable business bank account, do not automatically choose your personal bankers as there may be better deals elsewhere for business owners.

Several of the high street banks offer up to 2 years free banking for opening new business accounts. However if you are an established business and decide to switch banks, then they are less generous. It’s worth finding out, after any initial “free” periods or deals are over, what standing and transaction charges apply to business accounts.