Business Current Account - Legal Obligation?

monkeynose

As a limited company, am I legally obliged to have a business account?

I've just registered a limited company and I'm now looking at setting up a business current account.

My problem is that business accounts come with lots of charges and very low interest rates (although there's usually an initial free banking period).

So I was thinking I could set up a new 'personal' account and run the business through that. This would escape the fees and interest rates of a business account. But I'm not sure if there is a legal requirement for limited companies to have a business account?


On a related note, can anyone recommend a cheap business account?

My needs are pretty basic:

• Low volume of transactions
• Free debit card payments
• Free internet transfers
• Free internet banking
• No loan facilities

Santander seem to offer the only free account. I have heard bad things on here, but given my needs maybe they would be ok?

HSBC Business Direct looks fairly cheap and has a better reputation, but I'm not sure if it's worth the extra fees?


Thanks for any help!

agsnu

You need to realise that a limited company is a different legal entity to yourself, and moving money between the two has certain implications (e.g. tax). If you have a personal account yourself, any money there will be yours and not the business; also you'd effectively be asking people to pay you directly rather than the business. If you'd prefer a setup like this, perhaps setting up as a sole trader might be a more appropriate structure? Of course you'll lose the benefits of a ltd (the limited liability aspects).

So basically having a personal account in your name on behalf of a ltd company is a legal nonsense. Not to mention you might find that most (all?) personal accounts have T&C which say they are not to be used for business purposes (e.g. if you're a sole trader the bank's T&C might require you to have a business account even though you could "legally" use a personal account).

Isn't HSBC Business Direct effectively free for what you're talking about? Perhaps their debit card costs something, I'm not overly familiar, but I imagine the fees would be fairly reasonable...

opinions4u

So I was thinking I could set up a new 'personal' account and run the business through that.

No, you can't. A person is one thing, a limited company is another.

This would escape the fees and interest rates of a business account. But I'm not sure if there is a legal requirement for limited companies to have a business account?

You could try it. Fine until you get a cheque payable to a limited company. Or HMRC take the opportunitiy to crucify you.

Get a good accountant. That'll cost you money too. But it will save you a lot more in the long run.

chanz4

Your bank may also click into how the accounts been used, report you to hmrc for tax issues

pmduk

I'd say it'd be pretty certain the bank would cotton on fairly quickly and close the account or require you to convert it to a business account. Why should they give your account the benefit of free banking whilst charging your competitors?

BlondBoy

As said above, as soon as you get a cheque payable to your limited company and not yourself, you're in trouble in you're using a personal account. Some of your customers will want to be sure you've got a business account too (although admittedly, it's difficult for them to tell).

And as also said above, HMRC will have you for breakfast if they want to see your books. You'll have no way of being absolutely clear what was a business expense and what was a personal expense - and they'll tax you personally where there's a doubt.

If you pick up one thing and one thing only from the start, remember that your limited company is a separate entity from you. You're a (the sole?) director - but you must act in the company's best interests. It's not your money in a business account - it's the businesses. You can choose to pay yourself some it of if times are good, of course. But it's the business's money until it's paid to you.

Anyway, that rant over....

My limited company uses Lloyds TSB. Free banking for 18 months, I believe. After that, everything you list as a requirement is available at no additional charge on the Electronic Business Tariff. The only thing you have to stump up for is a £5 per month maintenance fee, which is, of course, a valid business expense for tax purposes.

Hope that helps.

monkeynose

Thanks for the replies!

Sounds like I will have to get a business account.
(I actually do want a business account - it's just I don't want to be charged 50p per transaction 18 months down the line).

It seems like the legality is maybe a grey area, but I definitely don't want any issues, so it's not worth the hassle.


I understand a company is a separate legal entity to a person (I'm actually a qualified accountant!). But my question was more from a legal point of view.

To clarify what I was thinking of doing (but not any more):

If I used a non-business bank account as the company account in every way (i.e. only business transactions), the only difference would be the account name. Is that an issue?
The only people who could see my bank statements would be:

• HMRC (if there was an enquiry)
• Auditors (if the company was large enough)
• The bank (this seems to be the main problem)

Cheques are not an issue for me - all receipts are through Paypal or Google.

I'm not sure if there would be any legal grounds for complaint from any of those 3 parties (although obviously the bank can withdraw the account if they're not happy).

Anyway, it doesn't matter now - I'll be getting a business account, just not sure which one yet!