When you first start your own small business, freelance work or become an independent trader, it can be tempting to use your existing personal bank account as both a personal and for the business bank account. But this causes your personal and business finances to become intertwined, which might cause a variety of setbacks for your business. This article will look at the benefits of business accounts:

  • What is a business current account
  • Do I need a business current account?
  • Benefits of business accounts
  • Considerations for business accounts

What is a business current account?

Business current accounts are used by any type of business, either commercial businesses, sole traders or freelancers, to manage any money that is acquired and paid out through their business. They work similarly to personal current accounts, so when businesses have to manage payments it’s beneficial to have separate accounts to keep clear track of what are business payments and what are personal transactions.

Do I need a business current account?

If you are registered as a limited company, then you will have to open a separate business current account so that your business finances are a separate entity to your own. But if you are a sole trader or part of a partnership you are not legally required to open a separate business account. However, here’s why we highly recommend that you do:

The benefits of business accounts

For sole traders, having a business current account isn’t a necessity but can help you to have much more control over your business finances for the following reasons:

Simplify your tax returns

With a separate business account, when it comes time to complete your tax return, you can clearly see all the income and expenses your business has facilitated without having to sort and separate your personal transactions. 

Separating business and personal transactions will also help you claim back your allowable business expenses – and effectively pay less tax. 

Allowable expenses become harder to identify when they are mixed in with personal bills. The situation worsens if you wait until the end of the month – or worse, tax year – to categorise your expenses. You might even mistake personal expenses for business costs, which could result in penalties from HMRC if you are audited.

Stay compliant with your bank and HMRC

Many personal current accounts note in the terms and conditions that the account should not be used as a business account to receive and make payments for business purposes. While you’re unlikely to be flagged for a few freelancer payments, if you are making and receiving payments regularly you might find yourself breaching the T’s and C’s of your account.

Sole traders and the self-employed must keep records for five years after the 31 January submission deadline of the tax year according to HMRC. Limited companies are required to keep business expense receipts for six years.

However, printed receipts are easy to lose, especially when they’re mixed up with personal ones. If your business has lots of expenses then six years’ worth of records is a great deal of paperwork.

The Countingup business account and app allows you to have a separate business account that automatically categorises business expenses and reminds you to take a picture of your receipts as soon as you’ve bought something. This eliminates the burden of organising any paper receipts and updating spreadsheets manually.

Look more professional 

By opening a business current account, you’ll be perceived as more established and professional than if you handed over your personal details for a customer or contractor to pay you.

Easier cash flow monitoring

To keep a business in good financial health, good cash flow management is key. It becomes more challenging to identify the amount of business money needed to cover operating costs when your personal transactions are mixed in with business funds, so to get a clear picture of your cash flow this would likely involve the unpleasant management of data entry and spreadsheets. 

Mixing business and personal expenses can also keep problem areas hidden, preventing you from finding ways to improve your bottom line and grow your business.

Save time and money on bookkeeping

When you mix your personal and business expenses, bookkeeping can take longer to manage. Trying to account for and identify different types of spending is a drain on your precious time as a sole trader. If you are paying an accountant by the hour, asking them to differentiate between personal and business transactions will quickly rack up a big bill.

Considerations for business accounts

Like personal current accounts, there are many options for business current accounts with a variety of features and benefits from every provider. There are some things you should be aware of when choosing the business current account that fits your needs the best:

  • Some providers may charge monthly fees for using a business account.
  • Certain providers may charge additional fees for cash deposits and withdrawals.
  • Other transactions may carry charges, such as international or currency transfers.
  • Often providers may have introductory offers, such as free for a year, better interest rates or other incentives for opening a new account with them. But always check the small print to find out the details of the offer so you aren’t caught out later.

The business current account that automates your bookkeeping

 Countingup is the business current account and accounting software in one app. It automates time-consuming bookkeeping admin for thousands of self-employed people across the UK. With automatic expense categorisation, receipt capture tools and cash flow insights, you can confidently keep on top of your business finances every day and spend more time focussing on the road ahead. 

Save yourself hours of accounting admin so you can focus on growing your business. Find out more here.