When you start working for yourself, there are plenty of decisions to make.
One question that often comes up is whether you need a separate business bank account, or whether you can continue using your personal account.
For most sole traders, the answer is straightforward.
You don’t usually have to open a business bank account, but keeping your business money separate can make managing your accounts much easier.
Do sole traders legally need a business bank account?
No. If you’re a sole trader in the UK, there isn’t normally a legal requirement to have a separate business bank account.
Unlike a limited company, you and your business aren’t separate legal entities. This means you can generally receive business income and pay business expenses through a personal account.
However, your bank may have its own rules about using a personal account for business transactions. It’s worth checking the terms of your account before you start using it regularly for your business.
Why have a separate account?
Although you may not need one legally, having an account that you use only for your business can make bookkeeping much simpler.
Imagine looking through several months of bank transactions trying to work out whether a payment was for materials you bought for work or something you picked up at the weekend.
When your personal and business spending share the same account, those decisions have to be made every time your bookkeeping is updated.
A separate account gives your business transactions somewhere of their own.
It makes keeping your records easier
As a sole trader, you need to keep records of the money coming into and going out of your business.
Using a separate account means your business transactions are easier to identify. Your sales can be matched against money received, while business expenses can be recorded without sorting through as much personal spending.
That can save time throughout the year and make it easier to spot anything that’s missing.
What about paying yourself?
This works differently for a sole trader than it does for an employee or the director of a limited company.
As a sole trader, you don’t usually pay yourself a salary from your business.
You can transfer money from your business account to your personal account when you need it. In your bookkeeping, this is normally treated as money you’ve taken from the business rather than a business expense.
Having separate accounts can make these transfers much clearer.
Does it need to be a special business account?
If you decide to keep your business banking separate, check what your bank allows.
Some personal current accounts aren’t intended for business use, so opening another personal account isn’t always the answer.
Business bank accounts also vary considerably. Some have monthly charges, while others may offer free banking depending on how you use the account.
You don’t need to choose something complicated. Look for an account that suits the way your business gets paid and how you normally spend money for work.
What if I’ve already been using my personal account?
That’s fine.
Plenty of sole traders start their business using the account they already have. You don’t need to undo everything because you decide to open a separate account later.
You can choose a sensible date to start using your new account for business income and expenses, then keep the records from your earlier transactions.
The important thing is being able to identify what relates to your business.
A separate account can help with digital bookkeeping too
Modern bookkeeping software can connect directly to your bank through a bank feed.
When you have an account dedicated to your business, the transactions coming into your bookkeeping software are much more relevant to your accounts.
That means less time separating personal spending from business expenses and a clearer picture of what’s happening in your business.
With Making Tax Digital for Income Tax bringing more sole traders into digital record keeping, getting into good habits early can make the move much easier.
So, should I open one?
For most sole traders, having a separate business bank account is a sensible choice, even when it isn’t a legal requirement.
It keeps your business activity easier to follow and helps make your bookkeeping simpler from the start.
If you’re setting up as a sole trader, you don’t need to have every system perfected on day one. A few good habits now can make managing your accounts much easier as your business develops.
Keep your sole trader accounts simple with Brease
Brease combines easy-to-use accounting software with support from real accountants, helping you keep your bookkeeping up to date throughout the year.
Your software is included, and we’ll help you get set up so you know what needs to happen next.
Whether you’ve recently started your business or you’ve been trading for a while, we’ll help you get your accounts organised and keep them that way.
Ready to make your accounting easier?
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Looking for more simple business advice?
This guide is part of the Brease Guides collection, created to help sole traders understand bookkeeping, tax and Making Tax Digital without the jargon.
