If you run a small business, you might want to know whether you really need to open a separate business account or whether you can simply use your personal bank account instead.
Key takeaways
Sole traders and freelancers aren’t required to open a business bank account.
It could still be a good idea due to the simplifying of account admin, extra features and more.
If you run a limited company you need to open a business bank account.
Can I use my personal bank account for my business?
Whether you’re allowed to use a personal bank account for your business depends on the type of business you run.
Sole trader
If you’re a sole trader or freelancer, or you’re contracting with a business that’s not a limited company, there’s no legal requirement to have a business bank account. That’s because your business isn’t legally separate from you – financially, you and your business are one and the same.
However, just because you don’t need one, this doesn’t mean you shouldn’t have one.
Limited companies
If you run a limited company, you are required to open a business bank account. This is because you’ve registered your business with Companies House, which means it’s a separate entity to you legally and financially. Opening a separate business account also makes it much easier to manage your company finances.
Business partnerships
Whether you need to open a business bank account as a partnership depends on the partnership you’ve set up.
General partnerships don’t need a separate business account as the business isn’t incorporated with Companies House. All partners manage their own profits and pay tax through self-assessment.
Limited liability partnerships (LLP) must register with Companies House, which means your company is a separate legal entity and you need to open a separate LLP bank account.
Limited partnerships also need to open a business bank account, as the company is a legal registered entity at Companies House.
Why you shouldn’t use a personal account for business purposes
Even if you don’t need to open a business account, there are reasons why it’s best not to use your personal account for business purposes. For a start, some banks won’t allow you to use a personal bank account for business transactions, and if you’re found to be doing so, your bank account could be closed or some features could be restricted.
On top of this, it can be a lot harder to track of your business expenses if they are combined with your personal transactions. This can make filing your tax return trickier.
Benefits of using a business account
Opening a business bank account has a number of benefits. For example:
It simplifies account admin. Keeping your business income and expenses separate from your own makes it much easier to file your tax return. Easily identifying business expenses can help ensure you pay the right amount of tax. What’s more, if HMRC has to investigate your business finances or you hire an accountant, they won’t have to look at your personal finances.
It can help you build a business credit rating. Having a separate business account can enable you to build a business credit score, which could make it easier for you to get accepted for a business loan or credit card in the future.
It can make your business appear more professional. Clients might be happier making payments into a bank account in your business name rather than your own.
You might benefit from extra features. Some business accounts come with additional features, such as accounting software integration and invoicing tools.
Bottom line
If you run a limited company, limited liability partnership or limited partnership, you’ll be required to open a business bank account for your company.
Sole traders and general partnerships, on the other hand, don’t need to open a business account, but there are many good reasons for doing so. Whether it’s to help track your business transactions or build a business credit score, using a business account rather than a personal one can make good financial sense.
Frequently asked questions
That depends. If you’re opening your account with an online (or digital) bank, it could be up and running the same day or within a couple of days. But opening a business account with a high street bank can take between 1 to 4 weeks, as the bank needs to carry out various identity and business checks.
Yes, you can open a business bank account if you have bad credit, but your choices will be more limited. A number of online or app-based providers don’t require a credit check as part of their application process, including Zempler, Tide and Card One Money.
This depends on the account. Some business bank accounts charge a monthly fee, while others charge for business transactions such as bank transfers, cash withdrawals and cash deposits. Some might charge both, so check carefully.
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio
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