When you start running a business, it’s important to be able to clearly separate your own personal money from the cash that’s been generated by the business.
One of the simplest ways to do this is to create a separate business bank account. Opening a specific business account gives you a discrete account to use for all your business transactions and expenses – and that can make life a lot easier further down the line.
Why do you need a separate business bank account?
If you’re running a limited company, it’s a legal requirement to open a business bank account. As a limited company, you and your company are two distinct legal entities. Because of this, you can’t use your own personal current account to make and receive transactions that relate to your business operations.
If you’re self-employed and trading as a sole trader, you’re not legally required to have a separate account – you and your business are seen as the same legal entity. But, regardless of this, it’s still a good idea to keep your personal and business cash in separate accounts.
What are the main benefits of having a separate account?
Having to deal with both your personal current account AND a business bank account may sound like double the work. But the reality is that it’s far more efficient for you to run all your business transactions through this separate account.
Here are the main benefits:
Should you have a separate tax account too?
It’s good practice to have a second business bank account that’s specifically set aside for paying your business taxes. Limited companies will pay an annual corporation tax bill against their profits. And sole traders will make up to three payments against their self-assessment income tax. Similarly, VAT is generally only paid over quarterly so it can be useful to keep sufficient funds aside for that.
It’s much easier to budget for these payments if you put money aside each month into your separate tax account. This way, you gradually accrue the money over time and ring-fence these funds so they’re instantly available when it’s time to pay your tax bill.
Talk to us about choosing a business banking provider
With so many digital and challenger banks now working in the business banking space, there are plenty of business accounts to choose from. You might want to go with a high-street bank that has plenty of branches for face-to-face contact. Or you might prefer one of the challenger banks so you get the bonuses of online set-up and managing your cash through an app.
If you’re not set up with a business account yet, come and have a chat with us. We can explain the benefits in more detail and help you choose the best account for your business.