A very common question many Sole-Traders (Self-Employed) have, is business bank account necessary to run a business and if its required by law or HMRC? The short answer – No. There is no legal requirement for Self-Employed to open a separate business bank account, however, there are a few advantages of having a business account as we will explain in this blog:
What businesses are required to have a business bank account?
Businesses that are trading as a Limited Company are required to have a separate business account. The reason for this is the legal aspect. In the eyes of the law, a Limited Company is a separate legal entity and therefore business transactions are kept separate of those of the shareholder owners. This is different to Self-Employed individuals, as in the eyes of the law, there is no distinction between the business and the person (Sole Trader is the “business”), hence there is no legal requirement to have a separate business bank account.
Benefits of having a business bank account for Self-Employed?
As there is no legal requirement to have a separate bank account, what could be the benefit(s) of having one? There are a few benefits of having a business bank account:
- Easier Record Keeping & bookkeeping
- Saves time and admin work
- Build credit rating of your business
- Less headache for filing your Self-Assessment Tax Return
- Integration with Accounting Software
Many people prefer to keep personal transactions separate from the business and one of the main benefits is easier record keeping and bookkeeping. This is especially important if you have many transactions in a given month and keeping business transactions separate from personal transactions (such as groceries and personal shopping), it will be easier to keep track of the business income and expenses transactions.
Additionally, when it’s the time of the year to file a Self-Assessment Tax Return to HMRC, it will be less stressful time if you keep a separate record for your business transactions. If you normally do not keep business receipts and invoices, sometimes it can be a nightmare to remember which transactions were actually business-related and which were personal!