Business account vs personal account for freelancers

So, you’ve opened a business and are now wondering – can I use a personal account for business?

Whether you are legally required to have a business bank account depends on your business structure. That being said, having a business bank account can be a good idea for most businesses, even freelancers and sole traders.

Professional account vs personal account

Let’s first see what business accounts and personal accounts have in common:

The main difference is that business bank accounts generally charge a monthly fee, as well as a range of fees for certain transactions. However, many banks usually offer an initial fee-free period before charging, so be sure to shop around before deciding on one.

Ultimately, a business account will generally be the best option for your business because it allows you to separate your finances.

Many banks offer features that personal accounts do not have access to, including:

• business financing

• investment banking managers

• the ability to accept payments from customers

• online tools and software to help you run your business

Can I use a personal account for businesses?

It depends on whether you are operating as an individual entrepreneur or setting up a limited liability company.

Like a single trader, you are not required by law to have a business bank account. Legally, you can use your personal bank account for business and non-business transactions, or you can create a second personal bank account to use for your business.

Keep in mind, however, that your bank’s terms and conditions may prohibit you from using a personal account for commercial transactions. There are also other reasons to separate your personal and professional finances.

Like a anonimous society is a separate legal entity, it must have its own business bank account. LLCs should not use a personal account for business expenses.

If you are unsure which business structure to choose, check out the difference between a Sole Proprietorship and a Limited Liability Company.

Business vs personal bank account for sole traders

As mentioned above, even if you’re not legally required to have a business bank account, there are a number of reasons why setting one up is a good idea.

Some banks offer specific business bank accounts for individual entrepreneurs and startups. This gives you the benefit of separating your finances, but often with lower monthly fees tailored to the services you need.

here is five reasons why you might consider opening one.

1. Your bank’s terms and conditions

It’s likely that somewhere in the fine print of your personal bank account documents it says your account is for personal use only.

If your bank realizes you’re using the account for your business (especially if there’s a lot of money going through or you’re handling a lot of cash and checks), they can force you to close your account and you say to open a professional account.

2. To keep things clear for HMRC

When you complete your tax return, you must tell HMRC how much money your business has earned. You can subtract certain allowable expenses (travel and office expenses, for example) to calculate your taxable profit.

If your personal expenses are mixed up with your business expenses because you use one bank account for both, it can be difficult to make these calculations accurately.

3. Simplify your administration

Not only does having a business bank account make reporting to HMRC easier, it also makes it easier for you to manage your business budget and forecast.

Sorting out which expenses are personal and which are for your business takes time, so having separate bank accounts helps you manage your finances more efficiently.

It also makes it easier to maintain accurate business records in general and will save you time when doing bookkeeping.

4. Establish your credit score

Having an account in your business name can help you if you need to apply for a business loan in the future. This helps establish a credit history for your business, which many banks will look for to determine if you are eligible for commercial financing.

5. Look professional

Having a dedicated bank account can make your business appear more professional, as customers can make payments to an account held in your business name rather than your own. Some customers don’t like making payments to personal accounts.

Do I need a business bank account for a limited liability company?

If you have created a public limited company, you are required by law to have a business bank accountbecause your business is legally a separate entity.

You should not use a personal account for your business expenses.

Do I need a professional bank account if I am self-employed?

Beyond the legalities and your bank’s terms and conditions for using a personal account for businesses, consider these questions:

Do you have any employees or do you plan to have any in the near future? If you are an individual entrepreneur and manage your own payroll accounting, it can become very complicated without a separate account.

Do you need to apply for a loan? Although not essential, having a business account can help you if you want to apply for business loans and other forms of financing.

Do you want expert trading support? Many banks have separate departments that handle services for businesses. By using a personal account, you will miss out on this expertise.

As mentioned, you may need a business account to suit your growth plans. For example if:

• you plan to set up your business as a public limited company

• your business processes many transactions

• your business income and expenses are getting complicated and you are worried about completing your tax return correctly

• you want to take out a business loan or obtain a business credit card

• you want to accept card payments from your customers

What do I need to open a business bank account?

When choosing your bank, you should first ask yourself if you want an account with physical branches or if you are happy with a digital bank account.

Once you’ve done your research, opening a business account online can take between one and four weeks while the bank goes through a series of checks. You will only need some personal information and business documents to get started. If you go digital, opening a business account can be much faster.

Here is the information you will typically need to open a business bank account:

• proof of identity

• proof of address

You may also need to provide details about your business:

See our article on the best business bank accounts for a comparison of the accounts offered by some of the major banks, including information on free periods.

This article does not constitute legal or financial advice. Please contact your bank or seek professional help if you are unsure if you need a business bank account.

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