As a sole trader, it’s not compulsory to have a business account, after all, you can process all incomings and outgoings through your bank account. However, it is well worth getting a business bank account and today we’re going to look at the reasons why you should consider getting yourself a business bank account.
The first reason is that using your bank account for business purposes might be going against the terms and conditions of your agreement with your bank. Within the terms and conditions of your contract, it may state ‘for personal use only’ and so if your banking provider picks up on the fact that you’re using your business bank account for business use they could threaten you with closure.
Having a business bank account as a sole trader also helps to keep things nice, simple and organised, both for yourself and HMRC. When you’re filing your annual tax return HMRC are going to want to know all of the incomes and expenses of that financial year and if you’ve got all of these transactions mixed in with your spending this can complicate things and it can be time-consuming to separate the two.
Finally, having a business bank account makes your company look professional. When you’re invoicing clients it looks a lot more impressive to have payments due to an account in the company name rather than an account in your name. It’s also sometimes the case where your clients may not like paying into personal accounts.
Now we’ve covered everything you need to know if you’re a sole trader, let’s move on to if you’re a limited company. As opposed to when you were a sole trader if you’re a limited company your business must have a business bank account. After all, since you made the transition towards becoming a limited company, it became its legal entity and so it, therefore, needs its bank account.
As opposed to personal accounts typically costing nothing to set up, business bank accounts on average will charge you a small monthly fee which usually is around £5 to £10. However, depending on which bank you’re with, they may waive the fees for the first year or two that you’re with them.
As your company is growing you may want to consider opening a business bank account if the following applies:-
- If you’re a sole trader and you’re planning on incorporating the business into a limited company.
- If your business processes a huge sum of transactions.
- If getting your tax return sorted is becoming complicated.
- If you want to accept card payments from clients and customers.
- If you’re considering taking out a business loan.
If you want to know more about business bank accounts and whether you should consider opening one feel free to get in touch with the team here at D&K Accounting. The banking provider that we advise you to go with is Starling Bank. Not only do you not pay any fees but there is also a facility for you to set aside and reserve funds within your company for tax expenses such as your annual self assessment. This profit first method is the most effective and also ensures you have that rainy day fund for any unforeseen expenses.