It depends upon your business structure whether you are legally obliged to have a business bank account or not, including freelancers and sole proprietors. As a sole proprietor, you are not legally required to open a business bank account – and, like many others, you can use your personal account for business purchases and employee payments. If you want to open a limited company, it is mandatory for you to open a business bank account. However, there are numerous advantages to open a business bank account, particularly for VAT and cash-flow considerations. In the blog, we discuss why you require or need to open a business bank account.
Do I require a Business Bank account?
If you are the sole proprietor, you are not required to hold a separate business bank account. It is nevertheless suggested if the following parameters are met:
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If you own a limited company, your business will be defined as a distinct legal entity, and you will be legally required to maintain a business bank account.
- You wish to accept card payments from your prestigious consumers.
- If you wish to obtain a credit card for your business or a business loan.
- It's becoming increasingly tough to track down your business expenditure and revenues, making it exceedingly tough to complete your tax return accurately.
- You wish to incorporate your business as a limited company and file a certificate of incorporation.
Is it possible for me to use my personal bank account for my small business?
As discussed earlier, you'll need a business bank account if your small business is a limited company. If not, there are a few aspects to consider:
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Do you currently have employees, or you need them in the near future? If you are a sole trader who manages your own payroll accounting, this might get quite difficult without a separate business account.
- Do you require a loan? While not required, having a business account may assist you in applying for a loan. For example –The Government's Recovery Loan Scheme.
Why you need a business bank account?
It is recommended that you should apply for a business bank account, even if you are doing some part-time business. You can legally use your business bank account or open another personal account for yourself. You need to consider few things before opening a business bank account. The Business bank account makes things very simple for HMRC. During your self-assessment tax return, you need to file your business expenses, outgoings and income. If you merge these numbers with the details of your personal finances, then it is very difficult to make sure that you are calculating total taxable profits in a proper way if you wish to claim back the allowable expenses. It is, therefore, good for you to open a bank account for your business separately and file the correct tax to HMRC without incurring fines and penalties.
If you have decided to open a business bank account, thoroughly consider your options and review the terms and restrictions. Nothing is more frustrating than rushing into a decision that you later regret.
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