If you’re self-employed, you aren’t legally required to have a business bank account. Whether you’ve recently set up your business, or have a growing business and have been using a personal bank account for some time, you may be thinking about setting up a business bank account instead.
Various business owners have their own preferences when it comes to deciding between personal and business bank accounts – so the decision hinges on what’s best for you. There are, of course, a handful of benefits – as well as some cons – to having a business bank account as a sole trader.
As an expert management accountant in Ipswich, we know a thing or two about business finances. In this guide, we’ll discuss whether – and why – you need a business bank account when self-employed.
Business bank account: Is it a legal requirement?
The answer to this question is no – by law, sole traders don’t need a business bank account. It’s not a legal requirement for anyone who is self-employed to have one. Regardless of whether or not you’ve employed other people, if you run your own business as a sole trader, you qualify as self-employed and are permitted to use your own personal bank account to conduct business.
However, if you own a slightly larger business, you could be registered as a limited company – meaning you would be legally required to use a business bank account that has no association with your personal one.
In the case of a sole trader, it is entirely up to you whether a business bank account is the right option for you.
Why set up a business bank account as a sole trader?
As discussed, sole traders aren’t legally required to use a business bank account. That said, setting up a business account could provide a wealth of benefits that a personal bank account won’t – for example, you’ll come across as more professional and be able to use your company name in invoices. Some potential limitations come with business bank accounts – but they don’t exactly outweigh the benefits.
Benefits of a business bank account
Having an entirely separate bank account for your business makes money management and financing substantially easier. Having your personal transactions muddled up with your business transactions will make handling your finances far more complicated if your business deals with a fair share of transactions. With a business bank account, you won’t get mixed up and the money-handling process will be seamless.
Along with money management, your time management is made far more straightforward when you opt for a business bank account on top of your personal one – sole traders can spend a great deal of time sorting out business transactions from their personal ones. UK sole traders can spend 15 days a year organising their business expenses from their personal bank accounts.
Another advantage of a business account is that you’ll have access to business finance. Setting up a business account can allow you to build up a credit history for your company, which could make it a lot simpler for you to obtain a loan.