Here, our tax expert Emily Coltman gives her top tip for the one thing you should change to make running your business finances easier – a second bank account.
The new tax year has recently started, so it’s a great time to think about making a new year’s resolution or two that will give your business a boost over the next 12 months.
But before you set off on a mission to boost your sales, revamp your marketing or pivot your company in an entirely new direction, it’s a good idea to take a step back and think about starting with some business basics.
As many as three-quarters of Britain’s self-employed workforce are using personal bank accounts for all business transactions, despite research revealing the negative impact on growth.
In fact, research suggested as many as 15 days of paid work are lost every year as a result of untangling business and personal finances. By combining finances into one account, self-employed workers could be at risk of inaccurate tax and business valuation by HMRC.
Why a second bank makes sense
That’s right – you’ll be much better placed to manage your finances with two different bank accounts rather than just one.
Why’s that? Well, one account is for the day-to-day money that goes in and out of your business. That’s where you’ll collect money from your customers and pay money to your suppliers.
Make sure this account has a debit card too – and use that card, not your personal credit card, to pay for business costs when you’re on the move. It’ll make it much easier to keep track of how much you’ve spent on your business if you do it all from the same place.
So when you’re buying a train ticket to go and visit a client – pay with your business debit card. If you’re in the post office sending a letter to a supplier – pay with your business debit card.
The second bank account is to put money aside to pay your taxes.
Be sure to keep track of how much tax you can expect to pay and when. Then transfer money into a second bank account – a savings account or similar – so that you have it available to pay HMRC on time and avoiding accumulating any interest, penalties or worry.
Avoid dipping into that account for day-to-day running costs if you possibly can – because if you take money out of that account, you’ll have to find the money for your taxes from somewhere else.
With a second bank account, you’ll have a clear picture of how much money your business is earning and spending, and you’ll also have the peace of mind of knowing you have money put aside to pay your taxes.
Emily Coltman FCA is chief accountant to FreeAgent, cloud accounting software provider for freelancers and micro business owners
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