Does a Business Need a Separate Bank Account

daveyjp

Far better to separate personal and business.

A bank can place a suspected fraud marker against any account at any time,  You will only know when you can't access the account and the bank won't discuss it with you.

How will you run your personal and business lives without access to funds?

It makes accounting much easier and even more so if HMRC launch an investigation into your tax affairs.

Ebe_Scrooge

DullGreyGuy said:

Roz81 said:

If you own a business can you use your personal bank account?  I have been using my personal account to pay all bills and suppliers.  And all income generate is going into the same account.  A friend has told me I need to separate the accounts as it's not good practice. 

Seems like a lot of hassle for setting up another account when my current one works just fine. My business is a lunch delivery service. Thanks

Own a business? As in a LTD? Or you mean you are a sole trader?

As a sole trader there is only you and so legal requirement to separate out your monies any more than there is between your bills money and your carefree spend money. That said, most personal lines bank accounts T&Cs prohibit the use of a personal account for business purposes and so doing so risks their wrath (but many get away with it). It's certainly easier when doing tax returns or showing the business's success etc to others if you have separate accounts as you then dont have to cross off all your non-work Sainsbury's or Anne Summers' purchases.

If you own a limited company then it's a different matter because it is a legal entity in its own right and so its money should go into an account in its name. 

This is probably an important point.  Certainly when I ran my own Ltd. Co. doing IT consultancy, most of my clients would only pay my invoices into a business account, they wouldn't pay into a personal account.  And it's easy enough to set up a business account, not really much different to setting up a personal account.

Most banks will charge an annual fee for the account, though most of the high-street banks will give you the first 18 months or 2 years for free.  Some of the "newer" banks may well offer free accounts, I'm not sure (it's a while ago that I did it!)

But all that aside, as others have said it just makes things a lot easier and clearer if you separate your personal finances from your business finances.

Rob5342

It shouldn't be that much hassle. 10 minutes to open a business account with Starling and then just move payments across as they happen.

TonyMMM

I ran my (sole trader) business for 10 years using a Santander 123 personal  current account, which at the start was paying 3% interest.

That was on the advice of Santander staff in my local branch!

Band7

TonyMMM said:

I ran my (sole trader) business for 10 years using a Santander 123 personal  current account, which at the start was paying 3% interest.

That was on the advice of Santander staff in my local branch!

Would the OP be able to get financial support from you if their combined personal/business account got blocked because they breached the T&Cs? Thought not.

TonyMMM

Band7 said:

TonyMMM said:

I ran my (sole trader) business for 10 years using a Santander 123 personal  current account, which at the start was paying 3% interest.

That was on the advice of Santander staff in my local branch!

Would the OP be able to get financial support from you if their combined personal/business account got blocked because they breached the T&Cs? Thought not.

Not giving advice ...just an observation.

They opened a separate account for me, not combined with my own personal one.

DullGreyGuy

Ebe_Scrooge said:
Some of the "newer" banks may well offer free accounts, I'm not sure (it's a while ago that I did it!)

They still do but you'd expect that will probably come to an end at some point... HSBC used to do a standing fee free "e-business" account for SMEs that did all their banking electronically (you could use branch services but they were all charged for at an escalated rate). They ran that for about 5 years or so and then withdrew it and transferred everyone onto a £8/month basic SME product. 

c-m

If operating as a sole trader then legally you don't need a business account. If making any reasonable money beyond it just being a bit of an ad hoc hobby, you'd be mad not to at least use a separate account though. 

Most banks will have terms and conditions regarding 'business use' but what defines that is more open to interpretation. BBC Money Box did a piece on this. (nightmare to find anything on that site). Here's the link to the episode. Relevant piece starts around 6:30 mins in. https://www.bbc.co.uk/sounds/play/m0011bfy - follows the story of someone who opened their personal Nat West account 36 years ago, and had been using it for self-employment for 25 years, then had it cancelled. 

Another website Money Saving Answers (no relation to MSE), asked the customer services teams of a variety of banks on twitter, and pretty much all of them said that x activity would need a business account. https://moneysavinganswers.com/business/using-personal-bank-account-for-business/

Roz81

TonyMMM said:

I ran my (sole trader) business for 10 years using a Santander 123 personal  current account, which at the start was paying 3% interest.

That was on the advice of Santander staff in my local branch!

Looks like you can use a personel account for a sole trader but if you form a limited company you need to separate your finances and open a business account.  Take a look at this - llc bank account.  Looks like different rules for sole trader versus limited company. 

Zanderman

Roz81 said:

TonyMMM said:

I ran my (sole trader) business for 10 years using a Santander 123 personal  current account, which at the start was paying 3% interest.

That was on the advice of Santander staff in my local branch!

Looks like you can use a personel account for a sole trader but if you form a limited company you need to separate your finances and open a business account.  Take a look at this - llc bank account.  Looks like different rules for sole trader versus limited company. 

That site is US I think, so I wouldn't go by that for any advice for UK banking!

The fundamental point is that a personal account should not be used for business purposes.  It is against every bank's terms.

Any advice to do so, even from MSE's own guidance or from people who have done so without problems, ignores the fundamental fact that you are clearly breaching terms - which could be trouble. Ignore all the stuff about HMRC not worrying about it or no legal need. It is the bank's rules you should worry about.

Some banks seem to tolerate it for a while, sometimes a long while - but there is always a risk they may stop tolerating it and close your account for breach of terms.  It happens. And when it does its a serious problem for your personal (and business) banking! 

There's absolutely no need to take the risk.  If you're a sole trader a business account is easy to open, free, and quickly, with Starling and others. So there's no point in not doing it. It's not difficult.

If you're a partnership those free accounts may not be available (annoyingly - though Virgin allow partnerships and give free accounts) but there are still 18 month or 2 year fee-free offers from other banks for business accounts. 

If you're a limited company it's a different ball-game - you must keep separate accounts as the business money isn't actually yours. And so a separate bank account is a must anyway.

Bottom line though is yes, open a business account. You've nothing to lose.  And you will be avoiding the risk of a major problem later.