Personal bank account for business – here’s what you must do
If you currently use your personal bank account for business, or are thinking of setting up a business whilst using only a personal account to manage the finances, read on for the things you need to be aware of and what you must do to ensure you’re able to meet the annual self assessment reporting requirements set by HMRC.
There are a million and one things to think about when starting a new business but when it comes to business banking, it pays to know what you should and shouldn’t be doing. Take personal bank accounts for example, anyone using them for business should know that they can only be used this way if certain criteria apply.
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Is It Ok To Use A Personal Account For Business?
The type of business structure that you have will determine if you are legally obliged to set up and use a business bank account. For example, sole traders and gig workers can use their personal bank account for business transactions but many choose not to. This is in contrast to limited company owners who have a legal requirement to ensure that they manage their company finances via a dedicated business bank account. Find out more:Limited company or sole trader – which is best for me?
Although it’s perfectly acceptable for a sole trader to merge their business transactions with their personal ones, there are still certain records that must be kept.
Full and proper record keeping will enable sole traders to accurately report their business turnover, profits and expenses to HMRC at the time their annual self assessment is due. This will ensure that they don’t underpay or overpay the amount of tax owed each tax year.
What Must I Do When Using a Personal Account For Business?
Check Your Bank’s Terms And Conditions
Most personal accounts will have a clause written into the small print stating that they shouldn’t be used for business purposes. Whether you choose to follow this or not is down to your own judgement. You should be aware however that your bank may ask you to open a business account should they become aware of a high level of obviously business related transactions passing through your account.
Keep Track Of Allowable Expenses
When it’s time to complete your annual tax return, you must be able to tell HMRC how much money your business has made. To calculate this, you need to be able to determine business profits for the year and these profits are calculated by deducting certain allowable expenses such as travel and office costs, from any income received.
Keeping track of income and allowable expenses may be harder, but not impossible when using a personal account for business. This is because the transactions will be mixed in amongst your day to day personal spending habits making it easy to miss figures that should be included in these important business calculations.
If you’re comfortable sorting through your bank statements each month to highlight relevant business costs, then you will be able to meet the requirements of HMRC, although it may take you longer to do than if you had a separate business bank account.
Tip: If you decide to run your business accounts through a personal account as a sole trader, you could always open a new personal account that is used solely for business transactions. There are also specialist sole trader business accounts available that come with lower monthly fees and tailored services to suit sole traders over traditional business accounts. Either of these options will help you to ensure that your business and personal finances are easier to keep track of when it comes to reconciling your accounts.
What’s The Difference Between A Personal And Business Bank Account?
Personal and business bank accounts offer the same basic features such as direct debits, overdrafts, cheque handling and debit cards etc but business accounts will usually come with a monthly fee of between £5 to £10.
Some business accounts may also charge for certain transactions on top of this fee such as depositing a cheque. Just like personal accounts though, you can shop around for accounts with no fees or free trial periods.