Do I need a business bank account?

Most businesses have dedicated business bank accounts, making it easier to keep the financial affairs of the business separate from those of the owner. It can be tempting for the smallest businesses to make do without a business bank account, particularly as business bank accounts often incur charges. But having a business account tends to be worthwhile, and may be a legal requirement.

Sole traders and business bank accounts

If you are a self-employed sole trader, you aren’t legally required to have a business bank account. You could choose to run your business using your personal account – though some banks object to this, and will ask you to open a separate business account if they realise this is what you are doing.

However, there are good reasons why you should have a business account:

• It makes it easier to keep financial records and to check for any errors.
• It’s easier to pull together the information you need for annual accounts and tax returns, and for VAT / PAYE returns (if your business is VAT-registered or has employees).
• You may find it easier to convince HM Revenue & Customs that your records are accurate and that you are paying the correct amount of tax, particularly if your business makes or receives cash in hand payments.
• You have a clearer view of how your business is performing.
• You can get a bank account that uses your trading name. This can create a better impression than using your personal name.

If you have a very limited business income – with annual turnover below the tax-free trading allowance of £1,000 – you will not normally need to register as self-employed, and probably will not find it worthwhile having a separate bank account.

Company and partnership bank accounts

If your business is a limited company, it must have its own company bank account. The company’s financial affairs must be kept separate from those of its owners and directors. The same applies if your business is a limited liability partnership (LLP).

If your business is a traditional partnership – where self-employed partners work together – you could in principle run the business without having a separate business account. But using individual partners’ accounts would be a recipe for confusion, making it difficult to keep track of both business performance and each partner’s financial position.

Having a separate bank account for your company or partnership offers the same advantages as it does for a sole trader. In addition:

• The business bank account ‘mandate’ lets you specify who is authorised to access the account and make payments.
• A business account is essential if you are raising money from external investors.
• Your business account provider may offer additional, useful business financial services – for example, cards for your employees to use for expenses payments.

Using multiple accounts

As well as having a main business current account, you may find it useful to have other accounts. For example, many businesses find it useful to keep a separate tax savings account, into which you can make regular deposits towards future tax payments. This helps prevent the business spending money which it is going to need.

Other circumstances in which you may want to have more than one business account include:

• Keeping client funds in a separate account (or in separate, designated accounts for each client). This is common for professional practices such as law firms and estate agents, and in some cases is required by regulation.
• If you trade internationally. For example, you may want to have separate accounts for different currencies, or local accounts in banks in the countries where your business operates.