Do I need a business bank account?

You are beginning your venture into the world of start-up businesses, forming your own company, but depending on its legal structure you may – or may not – be legally obliged to start a business bank account – separate from your personal account. In this guide, from Smarta, we’re going to take a look at whether you really need to open a business bank account. 

Sole trader

As a sole trader, you and your business are the same legal entity, so, if it encounters any problems – legal or financial – you are personally accountable. In terms of business banking, a sole trader is not legally required to have a business bank account, and so you can use your own personal account for business transactions, but this is not advisable. Here are some reasons why, as a sole trader, you should still set up a business bank account:

  • Check the small print. In the cases of some personal bank accounts it says, in the small print, that your account must be used for personal transactions only. Thus, you cannot use this account to run your business out of, without facing some legal consequences. This is most notably a requirement if you are banking with the likes of TSB, Lloyds, Barclays and HSBC.
  • Keeping things clear. It’s pretty easy to comprehend how difficult things may become if you are mixing up your personal and business transactions. For example, when you complete your tax return for HMRC you must declare how much money your business has made. You can subtract certain business expenses, however, if this is confused with personal transactions then your calculations may not be accurate, and you could be paying more tax than is needed. This is especially important if your business is under tax investigation.
  • When talking to potential business partners and/or clients, providing information for a bank in your business’s name may make your product or service more appealing.
  • Furthermore, setting up a separate business bank account may come with some benefits for you and your business. For example, if you set up a business bank account with Barclays you gain access to their monthly loyalty programme; the longer you work with them, the greater number of bank chargers they return.

Limited company

Whereas for a sole trader you are not legally required to have a business bank account, if you set up a limited company you must have a business bank account, as you and the company are separate entities. This will only help your business as you can keep personal and business transactions separate, and easily track your business’s economic activity. Moreover, you must keep records of your accounts for six years in accordance with HMRC, in case your company goes under tax inspection.

Setting up a business bank account

Upon setting up a business bank account, the process is fairly like opening a personal account. You will have to complete several applications required by the bank, as well as providing your company name, registration and possibly proof of its incorporation. The account signatories must also provide identification and proof their address, as well as the registered office address.

Furthermore, if you are an undischarged bankrupt, many banks may not permit you to open a bank account with them, and so first you must settle any outstanding debt you have with the courts. Remember to shop around for the best deals, and don’t just open an account with the bank your personally work with. On the other hand, you can set up a free account directly with Barclays through Smarta Formations.

Smarta Formations

You can set up a company with Smarta, and open a business bank account with our partners, Barclays or Lloyds Banking Group.  We offer a company registration service powered by the National Business Register.  You can search for available names then register a business name, or set up a company and/or register a trademark with us. You will receive a professional binder with all your official documents via post within 3-days.

Smarta Formations is the quickest and easiest way for you to register your limited company. All the hard work is handled for you. 

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