As a sole trader, you are not legally required to have a business bank account – and like many, you can use your personal account for things like business purchases and paying staff. However, there are many benefits for you having a business bank account, especially for VAT and cash flow purposes.
Around 75% of businesses in the UK are sole traders and made up of one person – and this means that you run a business but are not part of a limited company. As a sole trader, you get to keep all the profits your business makes after tax, but you are also personally liable for any losses and debts your business incurs.
If you run a limited company, you would require a business bank account, either from a high street bank such as Santander, Natwest or Lloyds or from a challenger bank like Monzo, Tide or Anna. By law, you require a bank account for any business activity because there are specific legal ways to move money from a business account to personal income, such as paying a salary via PAYE or paying a dividend on profits after corporation tax.
As a sole trader, you will need to notify HMRC that you are self-employed and file an annual self-assessment.
Why should I get a business bank account as a sole trader?
By having a business bank account, it will make the organising of your personal and business income and expenditure far easier to organise and avoid any potential overlap or miscalculations.
Certainly, it looks more professional if you are invoicing people with a business bank account, rather than a personal account or asking to be paid in cash.
You receive some basic benefits when you get a business account including online banking, cheque book, debit and credit card and overdraft facilities.
Nic Redfern, Finance Director at KnowYourMoney.co.uk explains: “In the past, it wasn’t uncommon for a sole trader to double up their personal bank account as their business bank account, however nowadays a sole trader business bank account can offer numerous advantages.
Sole trader bank accounts generally involve different perks to personal bank accounts. Whilst the latter may offer vouchers or cash back offers, the perks of sole trader bank accounts revolve more around access to a business bank manager, free business advice and discounts on business products and services, such as online accounting software.”
What to look for when applying
Business bank accounts typically come with monthly fees, ranging from £5 to £25 per month, however you can look for an introductory offer where there are no fees for a certain period of time or if you commit to paying in a certain amount each month e.g £1,000
Challenger banks such as Monzo and Tide, which are becoming increasingly popular may not come with monthly fees, but you will not typically have access to an overdraft or be able to apply for loans or finance through the provider.
An overdraft facility can be vital for new and small businesses and sole traders and provide an extra emergency facility when in need of cash flow.
If you are someone who is regularly working abroad or sending money overseas, you should check for ATM fees and FX fees, since these will usually be charged by high street banks, but not by challenger banks which is one of their biggest benefits.
