Before you start trading as a sole-trader you’ll need to ensure your banking facilities are in order. So, do you need to set up a small business bank account for your business, or can you use your own personal bank account?
Unlike with a limited company, there is no legal requirement for a sole trader to have a separate business bank account. Your personal and business affairs are treated as one for tax purposes. Essentially, you are your business. So technically, you are able to use your personal bank account for business transactions.
Despite this, here at Atkinson Accounts we would recommend any business has a separate account. Below, we have compiled a list of the benefits of this:
At Atkinson Accounts, many of our sole trader clients resent the idea of setting up a new business largely due to the additional administration that is incurred. Why would you spend precious business time setting up a separate business account when this could be spent with clients? In reality, many banks offer a time sensitive set up, some with the entire process online! In these cases, it can be done from the comfort of your own home, at a time that suits you.
At Atkinson Accounts, we have seen first-hand the time that is saved when preparing your accounting records with a separate bank account far outweighs that of setting one up!
One of the main benefits to having your own business bank account is that your business banking is kept separate from your personal. Income and expenditure are not compiled with your personal affairs. This is particularly beneficial when completing your tax return and claiming for expenses.
Here is where you will save the time… no more hours spent scrolling through the last year’s bank statements trying to decipher business from personal! It can be very difficult to remember back to 10 months ago whether the Amazon purchase for £7.68 was business or personal. Was the £100 banked 8 months ago a gift from your cousin or a cash sale? Having a separate bank account avoids all of this as you will know for definite that any money in or out is business related.
This ties in with the separation advantage but cash flow is a priority to any business and here at Atkinson Accounts we consider it a separate advantage entirely.
As all revenue and expenditure (and only these) are going through the company bank account, you will have an accurate representation of the position of the company. How is the businesses trade going? Is the business overspending? How much on average is the business making in net profit a week? All this you will have a rough idea of as all transactions are separate.
You are then able to make well informed business decisions – which will in turn help your cash flow going forward!
Saves time for bookkeeper/accountant
Just as a separate bank account will save you time at the company year end when deciphering just what records we require, it will save us time too! Messy bookkeeping is more common in cases where clients do not separate their banking.
This is not an entirely selfish point of view from Atkinson Accounts. We will not have as many queries to be hassling you – that’s less emails back and forth confirming personal transactions you might have missed! This means a quicker turnaround of your tax return – know what is due to be paid sooner, giving you more time to put the funds away… or just sleep easier!
We are also aware that you probably won’t want someone rooting through your personal bank statements. We know we wouldn’t!
Ultimately, the time saved by your accountant can then be spent working on your accounts and tax savings.
Terms and conditions of your bank account
Some banks stipulate in their terms and conditions that personal current accounts cannot be used for business purposes. This is probably so you don’t escape paying monthly banking fees on your business transactions. It is always worth having a look through these and checking before you make your decision. If you cannot find a copy of your terms and conditions, they are usually found on your online/mobile banking. Alternatively, if you get in touch with your bank, they should supply you with a copy.
Choosing a business bank account
Here at Atkinson Accounts, we always recommend that when a client is searching the market for a suitable bank account, they do not automatically use their personal bankers. This is because they may not always offer the best deal for your small business.
How do I get my money out of the business?
At Atkinson Accounts, when clients have approached us with whether it is worth opening a separate bank account or not, one of their main concerns is how they will be able to get their money. This is as simple as if it was your personal bank account – withdraw it! The money will then be classed as drawings. As you are a sole trader you will be paying tax on any profit the business has made in the year. Therefore, what you do with the funds after this point incurs no additional tax. That said, it might be worth a quick note to confirm that the withdrawal is indeed drawings and not for a cash purchase.
In summary, although you are not legally required to set up a separate business bank account here at Atkinson Accounts, we would suggest that the benefits far outweigh the negatives. You can set one up at any point – it does not have to be at the start of trading. We hope this clears things up a little bit, if you have any further queries please call the office on 01244 316449. Alternatively, please email firstname.lastname@example.org.