Feeding business account with money from a personal account during startup?

The_pc_tech

I've been looking to start my own business in my spare time and so am looking to set up a business account.

I will probably go with HSBC as I've been a First Direct customer for a long while so am technically one of their customers anyway.

I'm looking to fund the running costs myself from part of my salary while I get up and running to avoid incurring debt, to do this I'm intending to set up a standing order from my FD account to what would be the new account each month.

Now is this likely to cause me any problems with either of the two?

InsideInsurance

Are you going to operate as a Ltd company or Sole Trader?

From a banking consideration, there will be no issue assuming you are opening a business account with HSBC.

If you are a sole trader then there are no issues at all because there is legally only you anyway.

If you are a Ltd then you may want to have a chat with your accountant as you and the business are legally separate entities and you are effectively giving your company a loan and so there can be some tax efficiencies

zzzLazyDaisy

At the risk of stating the obvious - even as a sole trader you need to keep separate accounts for the business and identify which money has come from your private account. This is because you will have to declare yourself to HMRC as self employed and complete a tax return (regardless of whether you make a profit or loss). You need to identify the cash injections of your personal money and differentiate this from income from the business, as you have already paid tax on your personal money, so to that extent you would still treat it as a 'loan'.

InsideInsurance

zzzLazyDaisy wrote: »

At the risk of stating the obvious - even as a sole trader you need to keep separate accounts for the business and identify which money has come from your private account. This is because you will have to declare yourself to HMRC as self employed and complete a tax return (regardless of whether you make a profit or loss). You need to identify the cash injections of your personal money and differentiate this from income from the business, as you have already paid tax on your personal money, so to that extent you would still treat it as a 'loan'.

Legally (by statute) there is no requirement to separate accounts, you are simply creating a rod for your own back if you dont. That said, contractually, most personal bank accounts prohibit their use for a business.

You certainly need to differentiate between personal cash injections and income as a sole trader but you cannot consider the money a "loan" - you cannot charge yourself interest for lending yourself the money

The_pc_tech

I will be operating as a sole trader for a good long while until such time as the business is making a decent turnover and I need to employ others which I will only do when I am as sure as can be the business is secure as having nearly been made redundant myself before I know how awful it is and it is not something I would ever want to put an employee through.

I will definitely be setting up a business account as I do believe using an FD account for a business is a no no and I would not wish to pee the bank off as the service I have received from them has always been superb.

I would still be doing my day job and so paying income tax via PAYE but what do I need to say to HMRC?

zzzLazyDaisy

You have to register with HMRC as self employed

http://www.hmrc.gov.uk/working/intro/selfemployed.htm

The_pc_tech

How does that affect tax deducted from my salary though?

paulineb_2

Im a sole trader and I dont have a business bank account (Im a freelance fitness instructor) and I know a lot of people who dont. Its never caused me problems.

You have 3 months to register as self employed once you start up a business.

The_pc_tech

Cheers, no offence but I don't want to take that risk as I'll be taking payments for the service online so the funds will be transferred in from a merchant account which would very definitely set off alarm bells at the bank.

My main concern now is really what the effect is on my income tax situation from my day job if I register as self employed as for obvious reasons I'm not going to leave it until such time as it is generating sufficient turnover that I can draw an equivalent salary from it.

Many thanks for all the answers, it really is appreciated.

hohum

It means you will need to file a tax return every year. In this return you will account for your employment and tax paid through paye. You will also account for self employment income and allowable expenses = taxable profit. That's if you're a sole trader. You will also need to pay class 2 Ni contributions of 10.50/month unless you believe you'll earn under approx 5k.

The tax paid on your self employed earnings will be usually at standard rate, up to a certain limit.

There's lots of guides on this. Tbh I'm self employed and all my income, employed & self employed comes into my personal account. I keep books for my self employment. It's probably not terribly 'sensible' but my records are adequate. You may want to tot up bank fees, Ni, tax on income etc and make sure it will be worth investment?

The_pc_tech

Cheers, understand now.

I want to be absolutely certain that everything is above board which I'm definitely going to separate accounts and am going to set up a business one as when the business gets bigger which I hope it will I will convert to a ltd company so I think personally it makes sense to put such things in place now.