If you trade as a limited company, you do need a business bank account, because you and the business are separate entities. You can’t use your personal bank account for a limited company.

If you’re a sole trader, there’s no legal requirement for you to have a business bank account, but there are a number of reasons why you might decide to have one anyway:

  • It makes your year-end accounts easier (and might even save you money)

When it comes to preparing your year-end accounts, there’s nothing more off-putting than having to wade through page after page of bank statements that are a mixture of personal and business transactions. You’re likely to miss things that should go on your tax return, which means your tax bill won’t be right. If you use a bookkeeper or accountant, you might well find that they charge you less if all your transactions are kept neatly in a business account, rather than mixed up with your groceries.

  • It keeps HMRC happy

If you happen to be on the receiving end of an inspection from HMRC, you will have a much easier time of it if they can see all your business income and expenditure is going through one, separate, bank account. If your transactions are all over the place, it makes it much more difficult for them to tell what’s going on with your business, and they will need to look more closely to get the information they need. If there’s any indication that personal expenditure has been included in your business accounts, you could be facing a penalty.

  • You won’t be breaching your terms and conditions

With many personal bank accounts, the bank won’t allow you to use them to run a business – check your terms and conditions before you go ahead. You might be able to get away with it for a while, but that’s not the same as getting it right from the beginning. The last thing you need is for your bank account to be suspended when your customers are trying to pay you, or you need to pay your suppliers.

  • It’s easier to collect money from your customers

These days, many people will expect to be able to pay by card or bank transfer – even if you prefer more traditional payment methods, you’ll find that some of your customers don’t have a cheque book or keep cash on them.

Taking card payments isn’t a hassle these days, and it can be a very affordable and efficient way of making sure you get paid on time. You might find that you can’t use a personal bank account to take card payments, taking away a useful way of improving your cashflow.

  • It builds trust in your business

Although there’s nothing fundamentally wrong with giving your customer an invoice with your personal bank details on it, imagine how much more professional it looks when they can see that they’re paying into a business bank account. It gives your customer confidence that you’re a well-established and well-run business, who can be trusted to do things the right way.