A very common list of questions I get asked is whether a newly registered self-employed person needs to go through the rigmarole of setting up a new business bank account when running their business, whether they can simply use their current account or can just get a separate personal bank account. So in this article I’m going to outline the best practises when it comes to running your business accounts and which type of bank account is best suited for a self-employed business.
Can I use my current bank account to run my business?
Firstly, ALWAYS ensure you have a completely separate bank account for your business and a separate bank account for your personal life. This just creates clarity when completing tax returns etc as to what your business income and expenditure is – and what your personal income and expenditure is. Trust me, you do not want to get the two confused! If you accidentally list any personal expenditure within your tax return then the consequences can be very serious including fines and audits. So ensure you have a completely separate bank account for your business.
So with that said, back to the question!
As a self-employed business, there is technically nothing legally stopping you from using a separate ‘personal’ bank account for all of your business activity. However if you’re going through the effort of setting up a separate personal bank account then you might as well go the ‘whole hog’ and setup a separate business bank account.
In reality, as long as you list your businesses income and expenditure properly within your tax return and don’t list anything that was ‘personal’ income/expenditure, then HMRC are happy.
I do see why some people want to just setup a separate personal bank account since setting up a business bank account can take time and a lot of questioning from the bank as to how your business will work and sometimes requires business plans etc, which is too much fuss for some people who just want to run a very small and simple business. However I would ALWAYS recommend setting up an actual business bank account for 2 reasons:
- First and foremost, having a business bank account looks more professional to clients because it will be setup using your business name, not your personal name. For example, all of our customers pay ‘Zlogg’…and not me ‘Andrew Crawford’…because it would look very untrustworthy otherwise! This means your business name will be listed loangsied on all invoices and any official documentation that a customer will see and therefore look much more professional than just your own name.
- If you operate your business through a personal account and it is deemed by the bank to be running too similarly to a business bank account then they can get a bit tetchy and force you to change it to a business bank account anyway, so why not just save the fuss and do it straight away?
So in my humble opinion I always recommend setting up a specific business bank account when running a business. It just makes life much easier from the sense of “everything in this account is business income/expenditure and everything in that account is personal income/expenditure.” and as mentioned above it will make your business look much more professional and trustworthy when all bank records are listed as your business name.