One of the most common questions asked by those who are new to business or self-employment is “do I need a business bank account?”
While nobody will force you to open a business bank account, it makes a lot of sense to open a second account of some sort. Your account should tell the story of the business; both to give you a greater understanding of your finances and to help you out if the taxman comes to have a look. There is nothing in the rules of setting up a business in the UK that says you need to have more than one account by law, but there are some compelling reasons why you should do it anyway.
What is the difference between a personal and a business bank account?
A business bank account is fundamentally the same as your personal account. The main difference is that most business accounts will have favourable credit deals associated with them such as an overdraft or company credit card. This is why some people will struggle to get a business bank account if they have bad credit.
The other crucial difference is that there are usually charges for using a business bank account. Some banks may waive these costs for a year or longer, but ultimately you will have to start paying up at some point. The costs are rarely sky-high though, so do not worry about them too much.
Do I need a business bank account to start trading?
Legally speaking, you don’t need to open a business bank account; but that is not the end of the story. For starters, many banks will not be happy with you running a business from your personal account. This means that they can force you to leave the bank if they are not happy with your situation. So, HMRC may allow you to do it all from one account, but some banks will not.
“A second bank account should be part of your plans from the start,” reckons accountant and business owner Andy Pollard, “This is why we always advise our clients to make enquiries about opening a business bank account, right from the start of our business planning process.”
Most of my business is cash-in-hand, so what use is a business bank account to me?
If you are in a business that takes cash then it may be prudent to have a second bank account to put it into. Why? There is no way to know if you have received and spent the money or not. With a bank account that is dedicated to your business, you can show the taxman statements that clearly show how much your business has made. Without this account, you will have no records and the HMRC may decide that you have been cheating them out of money.
“This may sound a bit harsh,” said Andy Pollard of PL Accountants who specialise in helping sole traders and small businesses with their business planning service, “but they can sometimes work on the assumption that without adequate evidence of the money that goes into and out of your business, you may be hiding something, which can result in a large tax bill and a lot of stress.”
What if my credit rating is bad?
If you have not got good credit, you can still get a second bank account of some sort. Even those with a shocking credit rating can always get a basic bank account, so there is no excuse not to. If you are self employed and hardly bringing in any money at all, you should get yourself some kind of separate bank account to make managing your business a lot easier and to help yourself if HMRC come calling.
About the Author
Phil Charnock is a writer and editor and Draw and Code. Follow Phil Charnock on Google Plus