Whether you’re a sole trader or have a side-hustle, it’s often recommended that you open a separate bank account to manage your finances. A number of UK providers offer bank accounts that have been designed for those who are sole traders.
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Read the full methodologyUnlike limited companies, there’s no legal requirement for a sole trader to open a business bank account.
However, legal aspects aside, most banking providers don’t allow personal current accounts to be used extensively for business purposes.
So, if you’re a sole trader, it shouldn’t be a problem to accept payments for the work you have carried out. But if a high volume of business-related payments is noted going in and out of your personal account, then your bank may contact you and ask you to set up a business account.
If you’re going to be doing a huge amount of business banking, we’ve already established that even as a sole trader you probably won’t be allowed to use your personal current account for that.
But apart from that point, there are lots of other advantages that come with setting up a business bank account.
For one, it makes it a lot easier to keep your personal and business finances separate, especially when it comes to the end of the financial year and you need to work out your tax bill.
And then there’s the fact that some business accounts come with great features to help you manage your cash flow and bookkeeping.
Depending on which account you sign up for, you could benefit from an invoice creation service, expenses management, spending categorisation, budgeting tools and tax and VAT calculators. If you already use a different accounting software package, such as QuickBooks or Xero, these accounts can often integrate directly with those too.
And with a raft of new digital account providers on the market, you can usually manage all of this on the go through a slick mobile banking app.
Making Tax Digital is a new, modernised way of recording and reporting your income and expenses as a sole trader to HMRC.
Instead of completing one self-assessment, you’ll need to use recognised MTD software, send quarterly updates and then submit your tax return by 31 January each year. Tide offers such a solution.
Tide Business Bank Account (Free)
8.9 GreatTide offers 4 different business account plans, one of which is free and the rest charge a monthly fee. All 4 plans come with Tide’s free built-in HMRC-recognised software designed to help sole traders meet new Making Tax Digital (MTD) requirements. This means that if you open a Tide business account you won’t need to sign up to (potentially costly) MTD-compliant software elsewhere in order to submit quarterly updates and your final declaration to HMRC each year. Tide’s software also allows you to automatically categorise transactions, customise invoices and set aside money for your tax bills in a separate account. Additional account perks depend on the Tide plan you have, but all can be opened via the app in as little as 10 minutes, and no credit checks are carried out. You should receive your Tide card within 2 to 4 working days.
Some banking providers have specific accounts designed for sole traders, while other banks will just let you use their standard business account. The application process varies by provider, but most can be completed online now.
In general, when you open a business account as a sole trader, you’ll be asked for proof of ID, proof of address and your contact details (plus your business name and address, if you have chosen to set these up as separate to your own). You might be asked for some details about your business, and a credit check may also be carried out.
Although it is not a legal requirement, there are many advantages to having a business bank account as a sole trader.
Using your personal account for your startup business or side hustle might work at first, but as you start to carry out more transactions, your finances can quickly become overwhelming! This is especially true when transactions are not labelled clearly, or you want to keep an eye on the cash flow of your business separately from your personal finances.
If you choose to set up a business bank account, you’ll find it much easier to track how your business is doing as a sole trader, especially when you have many other responsibilities to keep you occupied.
As a sole trader, you are responsible for reporting your tax bill to HMRC at the end of the financial year. If you’ve been using a specific business account for all your business-related transactions, this process will be a lot quicker and easier and save you from the headache of tracking everything down.
Many business bank accounts come with additional features that will make your life easier if you are a sole trader trying to manage your business’s day-to-day operations.
Some of these include:
If you use accounting software, you may also be able to link this with your business bank account through accounting integrations.
Many business accounts offer benefits, such as cashback when you spend with your business card. You can also get additional physical debit cards for your employees.
Finally, having a dedicated business account helps you appear more professional to your customers! It helps them to feel safe that they are sending their money to the right place and that your business is legitimate.
As with any financial product, the key to finding the best business bank account is to shop around and compare your options.
As part of your comparison, you’ll need to consider which features are the most important to you. For example, are you willing to pay a monthly fee or would you prefer a free account? Keep in mind that there may still be charges for certain transactions such as transfers and cash withdrawals.
You should also think about whether you might need an overdraft, whether you want your account to link to accounting software such as QuickBooks and Xero, whether you need invoicing support and whether you need to regularly bank overseas.
Don’t forget to also consider how you want to manage your account. Are you happy to bank solely online/via an app or would you like the option of being able to pop into a branch? When you’ve considered these options, you should find it easier to find the right account for you.
The application process varies between business account providers, but you may need the following:
An increasing number of digital-only bank accounts have launched onto the market in recent years such as Tide and ANNA Money, but how do they compare to traditional high street bank accounts and why should you choose one?
One of the biggest benefits of opening a digital business account is that the application process is quick and straightforward. In many cases, your account will be open the same day you applied. Some digital business accounts can even be opened without requiring a credit check, making them a good choice if you’re just starting out and have a limited credit history.
Many digital-only accounts also offer more innovative features compared to traditional bank accounts, whether that’s through linking to accounting software, offering budgeting tools, or including fee-free foreign transactions.
However, there are of course downsides. For a start, you’ll need to be happy managing your account online or via an app. Depending on the provider, you may also be able to manage your account via the phone, but there will be no bank branches to pop into if you need assistance.
Unlike high street banks, money held with digital business accounts won’t always be protected by the Financial Services Compensation Scheme (FSCS) either. This protects up to £120,000 per person, per financial institution. Instead, your money is likely to be protected by safeguarding requirements under the Electronic Money Regulations 2011.
Finally, keep in mind that because many digital-only business accounts do not carry out credit checks, they also will not offer overdrafts. By comparison, most high street bank business accounts will offer credit, including overdrafts and business credit cards. Again, you’ll need to weigh up what’s most important to you to help you decide.
Pros
Cons
It’s not a legal requirement for a sole trader to set up a business account for their banking needs (like it is for limited companies), and business accounts do often come with fees attached. But there are several advantages to opening one, including making the management of your business finances easier and being able to take advantage of any invoicing, cash flow and tax calculation tools that may come with it.
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NatWest offers a range of business banking options including current accounts, savings accounts and business insurance, as well as specialised accounts for startups and charities.
Mettle is a spin-off venture from parent bank NatWest – find out more about what this business banking app has to offer small businesses.
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Is Tide’s current account for businesses right for your company? We take a closer look at all of the fees and features of a Tide account.