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Do I need a sole trader bank account?

January 10, 2022

If you’re looking to get your business up and running as soon as possible, your best bet is to set up as a sole trader. Not only is there a lot less paperwork to deal with, there are also fewer obligations to commit to while you’re still finding your feet — including setting up a sole trader business bank account.

Unlike limited companies, it is not a legal obligation for sole traders to have a business bank account, meaning they can run their small business entirely from their personal bank account should they wish. However, as your business grows and your needs become more complex, managing your business finances solely from one account may make life harder in the long run.

In this article, we’ll be outlining what exactly a sole trader business bank account is, the benefits and drawbacks of having one, and how you can find the best bank account for your new business.

Coins in a savings jar next to a wallet and business credit card

What is a sole trader business account?

In short, sole trader bank accounts are business bank accounts specifically tailored towards the needs of sole trader business owners. While not too different from a personal bank account, a business bank account offers banking facilities such as business cheque books, a business debit and credit card, online and telephone banking and overdraft facilities.

Can I use my personal bank account for business if I’m self-employed?

If you’re operating as a sole trader, there is no legal obligation for you to open a business bank account, and therefore it is possible for you to use your own personal bank account.

However, limited companies and Limited Liability Partnerships (LLPs) are legally required to use a business current account for all financial transactions, so be prepared to open one if you chose to change your business structure later down the line.

The reason all boils down to how the government perceives you and your finances. As a sole trader, HMRC sees you and your business as one legal entity, so it doesn’t matter too much if you use your personal bank account for business purposes; if your business falls into financial difficulty, it’s your personal assets that’ll be used to pay off any outstanding debts.

However, as limited companies are seen as separate legal entities to their directors and shareholders, all business matters must be kept entirely separate from personal ones. Failure to do so could see you land in serious trouble with the law, so if you plan on morphing your sole trader business into a limited company, be sure to have a business bank account open before you do this.

Do I need a sole trader business account?

While it isn’t a legal requirement for sole traders to open a business bank account, depending on the nature of your business you might find it beneficial to do so.

To help you decide if opening a sole trader business account is right for you, we’ve outlined some of the main benefits and drawbacks that come with doing so below.

Benefits

Professionalism

If you’re looking to show your clients and suppliers that you’re serious about your business, setting up a business bank account is one way to do it. In doing so, you’re letting those you work with know that you’re on top of your finances, as well as making it much easier for clients and suppliers to transact with you.

Loans and credit

It’s not just your clients and suppliers who want to see that you’re serious about your business. If you’re looking to apply for a business loan or line of credit, most banks are likely to turn your application down if you’re only using your personal account to manage your finances.

Better bookkeeping

Balancing the books becomes much harder when you’re wading through transactions, trying to tell your business transactions apart from your personal ones. With a business bank account you’ll find it much easier to keep the two separate, meaning less time spent on bookkeeping and more time on actually running your business.

Simpler tax returns

Not only does having a separate business bank account make it easier to keep track of your transactions, but it also makes reporting your business expenses to HMRC much, much easier. With allowable expenses, such as office supplies and travel costs, mixed in with your personal expenses, it’ll be much harder to make a successful claim on them when submitting your Self Assessment tax return.

Drawbacks

Bank fees

If you’re new to starting a business, you might find yourself put off by the fees that come with having a business bank account. Not only will you need to shell out for a monthly account fee (although, depending on the bank you’re with, you might find these fees are waived for the first few months), but you’ll need to pay additional fees for services such as account maintenance or cash withdrawal from ATMs.

Lower interest rates

While personal bank accounts pay interest on savings, business bank accounts pay much lower interest rates than personal bank accounts, with some banks offering no interest at all.

Choosing the best sole trader business account

If you’ve decided that getting a business account is best for your sole trader business, the next step is to find the right business bank account for you. To help you do so, we’ve outlined the top six things to look out for when choosing a business bank account.

Features and services

First and foremost, you’ll want to make sure you have a business account that has the services your business needs, such as access to a mobile banking app, online banking, bill payment services and credit or debit card access.

Monthly fees

Different banks charge different fees for their services, from transaction fees to withdrawal charges, so be sure to shop around when making your decision.

Sign-up perks

A lot of banks offer incentives to business owners who open business accounts with them, and can be anything from zero fees in your first year to cash bonuses upon registration.

Integration

If you’re using accounting software to manage your business finances, you’ll want to find a bank provider that easily syncs with whatever you’re using. With Ember, you can find the full list of banks we integrate with here.

Transaction limits

As your business grows, the number of transactions and transfers you’ll make in a month will increase — and you’ll need a bank account to keep up. Read the fine print to see if there are any caps on the number of withdrawals you can make in a month, or if there are any fees that come with making above a certain number of transactions in this frame.

FCA approval

It is a legal requirement for all financial service providers, investment firms and consumer credit firms to be authorised by the Financial Conduct Authority, so be sure to check if your provider is FCA approved before handing over any details. For more information on whether or not your chosen provider is up to scratch, visit the FCA’s website.

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Don’t think a business bank account is for you?

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Cam Finney

Cam is a Chartered Accountant with a wealth of experience working in accountancy. After graduating with a Bachelors Degree in Accounting and Finance, he moved to London to start an Audit graduate scheme, where he developed a robust knowledge-base of all things accounting.