One question many people ask when setting up a business is if they can use their personal bank account for business use.
Whether or not you can legally use your personal bank account for your business will depend on the structure of your business.
If you are a sole trader, then the quick answer is yes, however, it is always advisable to open a separate account. This is because HMRC requires you to keep personal and business funds separate, something that can be difficult if you are using a single bank account for both. In this short article, we explain everything you need to know.
Can a sole trader or a company use a personal bank account for business?
If you have chosen to go into business as a sole trader or a company then you can, in theory, use your personal bank account for business expenses and customer payments.
Your bank, however, may state in its terms and conditions that your personal account cannot be used for business purposes. If it suddenly notices a lot more activity is taking place within your personal account, your bank may insist you open a business account.
On the other hand, if you have a limited company you must have a separate business account, as it is a distinct legal entity. There is a legal requirement to keep your personal and business finances separate.
Why is it best to have a separate bank account for my business?
There are several reasons why it is best practice to have a separate bank account for your small business, including:
- it is much easier to separate personal expenses and business expenses, something you will need to do for tax purposes
- you can keep track of how much money you have for personal use and the funds available for reinvesting in your business
- if HMRC decides to audit your business, something they can do at any time, both your personal and business expenses will be scrutinised
- it builds your business credit
- it helps you track your business performance
Final words
Although you can have the same bank account for personal and business purposes, it is more professional to open a separate account. Having a bank account under your trading name elevates your business from the status of a hobby to a serious venture.
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Whether you are operating as a sole trader or a limited company, running a business isn’t easy. One of the most common questions that business owners ask is “Do I need a business bank account?”. We hope this article has helped you find the answers you need in terms of the pros and cons of having a business bank account.
If you need to explore the legal requirements when it comes to how you manage your business’ finances as a startup do not hesitate to contact us.
Book a free 15-minute consultation with one of our experienced commercial lawyers who will be happy to help you.
