When you start out in the world of business, you might wonder whether you need a business account or whether your personal account will suffice.
There are charges associated with business accounts which means people might choose to avoid them but there are reasons why a business account might work for you.
I Trade Through a Limited Company, Do I Need a Business Account?
In a nutshell, yes. If you trade via a Limited Company then you will need a business bank account that is also named after the company. This is because any income is owned by the Limited Company and not you.
If you put the money into your own account, it will be treated as withdrawn which means that tax becomes applicable.
What if I am Self-Employed?
The simple answer is no. HMRC does not stipulate that you need a business bank account but your bank might want you to. So, if you are operating on a small scale then it might not get noticed by your bank. However, if you handle many transactions and payments, you might be breaking the terms and conditions of your bank which might mean your bank requesting you to open a business account.
Why Should I Use a Business Bank Account if I Don’t Have to?
The main reasons to use a business bank account is to make bookkeeping easier and to keep control of your business and how it is performing.
How Does a Business Bank Account Assist With Bookkeeping?
When you use a personal account, your business and personal activities become combined. This can make bookkeeping and your tax returns difficult. This will require going through statements with a fine-tooth comb to split up any personal transactions from business transactions.
How Can I Use a Business Account to Monitor the Performance of My Business?
Your bank account is the first place to look when it comes to bookkeeping. If you have money in the bank, this is a good thing. If there is no money, then you can find out why. Using a business bank account, you can keep a track of paid invoices and how much you are spending. When personal and business transactions are mixed, you might not realise how your business is performing.
Does a Business Account Provide Better Privacy?
Yes, it does. If you are selected for a tax inspection and have a business account that you use to make a couple of salary payments each month, then HMRC won’t need to look beyond this account. If you have a personal account, they could go through all of your personal transactions. This could include making transactions to a savings account or a joint account, which means that they can ask to see all statements. Secondly, having a business account is perfect for privacy when it comes to your accountant. While your accountant will maintain confidentiality, do you really want them to see every transaction you make? If not, then a business account will be the right option for you.