If you’re running your own business but still using a personal current account, you might find it easier to manage your company’s finances with a business account – and it could even be a requirement. In the second of our series on running a small business, we take a look the benefits of a dedicated business bank account.
Why open a business account?
A business current account offers similar functions to a personal current account such as direct debits, standing orders, debit cards and overdrafts. But they’re not the same thing. Here are some reasons to consider whether a business current account is right for you.
- If you run a limited company or business partnership, you must have a business account. It’s also worth considering if you’re a sole trader, as personal accounts are designed for personal use only - this is likely to be mentioned in the account terms and conditions. If you’re running a business through one, you run the risk of your bank closing it.
- Keep your finances separate from personal spending. This helps you better manage your cashflow and gives greater visibility over expenditure and liabilities at the end of the tax year.
- Have complete and accurate recordkeeping. This means having a clear record of all sales and expenses at all times.
Many accounting packages, such as Xero, can link to your business account, making recordkeeping and reconciliations much easier. It’s also invaluable should you ever need to demonstrate a clear audit trail: all your incomings and outgoings are in one place.
- Access to other business banking benefits. You could open a linked business savings account to set aside money to cover annual bills such as VAT payments or corporation tax. This will give you peace of mind you can meet these obligations in the future.
Having a business account also means you can apply for a business loan or credit card, or take card payments from customers. If you need support or advice, you can always speak to your bank for help on everything from deposits to payment services, loans and finance.
Unlike personal current accounts, business accounts aren’t always free. Many banks offer a period of free banking when you open a business bank account or switch from another bank. Once this free period ends, you will typically have a choice of tariffs that you can move onto. However, account charges are an allowable business expense, which means they’re tax deductible.
A business current account is the best way to keep track of your income and expenses while running your company, whether as a sole trader, limited company or business partnership. As well as helping you look more professional and establishing you as a legitimate business – especially helpful if you’re a start-up – you’ll enjoy greater clarity over cashflow and find tax return time far more manageable. Just remember to keep physical or electronic copies of all invoices and receipts, as you will need these should you ever be subject to a tax investigation.
Other articles in the series on ‘Running a small business’:
Does working from home invalidate your insurance?