Does a sole trader have to have a separate business bank account?


The simple answer is No: a separate bank account is not needed, and by not using a business bank account, the sole trader may be able to save on the bank charges that are usually applied to business accounts.

This follows from the fact that the business is not legally separate from the self-employed person who is running it.

However, there are a number of reasons why it might be better to open a separate business account:

    Cash to bank

  1. The terms and conditions of a personal bank account may prevent it from being used for a business.
  2. If the sole trader is using a different business name, and receives cheques in that name, it might not be possible to pay them into a personal bank account.
  3. The business may wish to accept payments by credit card or debit card, which is unlikely to be possible with a personal bank account.
  4. The bookkeeping is made easier if all transactions relating to a business are grouped together into a separate bank account. At the very least, it saves having to pay your accountant to filter out your weekly personal shopping trips to the supermarket in the process of adding up your proper business expenses.
  5. By regularly monitoring the balance of a separate business bank account, it can give some idea of the profit or loss being made.
  6. Money can be left in the account to pay the tax on the business profits, reducing the risk that the money might instead be inadvertently spent elsewhere.

For similar reasons, a person running more than one self-employed business may prefer to have a separate business account for each business, but again this is not a legal requirement.

Note that the position is very different with a limited company. While it is not a specific legal requirement for a limited company to operate a business bank account, not doing so can lead to all sorts of tax and legal difficulties, and we would strongly recommend that every company has a separate bank account in its own name.




26 Comments (oldest first)

  1. Justine Gray

    In April I started a part time job in the NHS and was offered some consultancy work for a school to supplement my income. I have now been offered a full time job which starts in December. I registered as a self employed business with the tax office back in April but I’m now thinking that it should have gone down as a second job - did I do the wrong thing? The consultancy work in the school comes to an end in July 2015.

    Regards

    3 November 2014

  2. Admin

    It would depend on the nature of the “consultancy work”. Was it under a contract of employment, with tax deducted?

    3 November 2014

  3. sally

    Hi
    My husband and i have a spare joint bank account not being used. I want to start a business as a sole trader and plan to use this account. As a sole trader am i allowed to use a joint account or has it got to be in my name only?

    7 December 2014

  4. Admin

    It is fine to use a joint account.

    7 December 2014

  5. Bert

    Hi,

    Legally for tax reasons and self assessment reasons for doing your business banking, is opening and using a separate personal account for business only acceptable?

    I just need to find out that it doesn’t matter for HMRC if the business banking account is a separate personal account or a separate business account (that comes with fees and charges).

    Thanks

    18 December 2014

  6. Admin

    That is fine for tax reasons and self-assessment reasons. The bank might have some sort of complaint against you that you were misrepresenting yourself to them, but it is highly unlikely to come to anything.

    18 December 2014

  7. Michael

    I am in the process of starting work with a company which uses casual, “freelance” staff. As such, I will be self-employed, albeit subcontracting to a single employer.

    Because of the “casual” nature of this work, I am also pondering other business activities I could undertake to supplement the income during quiet periods. I have formed - at least in my head - a “Group” of companies which would share branding - XYZ Main Business, XYZ Supplementary Business, etc…

    What’s the tidiest way to set this up? One bank account for the “Group”, or separate accounts for each “division” - bearing in mind that the whole thing is just me, myself and I?

    14 March 2015

  8. Admin

    Either way is fine. What is “tidiest” is a matter of personal preference.

    14 March 2015

  9. Elena

    Good afternoon,

    I am about to do my registration as self employed, I am a carer who has worked through PAYE up to this time. My question would be: are there any additional taxes related to the address of the business to be paid (council tax or business rates) if I won’t do the job at that address (which is my personal address as well by the way) since I will work in clients’ home as a live-in or live-out carer?

    Thanks for taking the time to answer this question.

    11 April 2015

  10. Admin

    When you register as self employed, HMRC ask for a business address, as some people do have a separate business address. For most people though, the business is effectively run from their home, even if they visit clients to do the work.

    If you are doing most of the work at your clients’ homes, and you are not having employees or clients calling at your own home, there is no question of paying any extra taxes on your home.

    12 April 2015

  11. Dan

    Do I need to set up a new account if my current one is joint with my wife before I start to trade (sole trader)?

    13 April 2015

  12. Admin

    No.

    13 April 2015

  13. dan jones

    Iv been a sole trader for a year now without a business account, work is pouring in now and i have to buy materials etc should i open a business account now?

    13 April 2015

  14. Admin

    Which part of this page didn’t you understand?

    14 April 2015

  15. Roberta

    Good morning,

    I am about to register as self employed, and I will do all of my work for someone else.

    I am currently living in a provisory address, which I have been told (by who is hosting me) cannot be used in the registration form.

    Can I use another address?

    Would I need to have the same address for home and bank account?

    Thank you in advance for taking the time to answer this question.

    17 April 2015

  16. Admin

    The address you give to HMRC does not have much significance outside HMRC. It is mainly used to write to you, and to identify the business within HMRC. It might possibly be relevant to whether your travelling expenses are deductible. It has nothing to do with the address used by the bank account. Obviously I am not going to recommend giving HMRC or the bank an address that is not correct.

    18 April 2015

  17. Helen

    I use my personal account for my massage business and I keep all my receipts and records of treatments I do, what I get paid etc. Currently I pay all cash I receive into my account but do I actually have to do this? Would it matter if I just use the cash without putting it through the account?

    23 April 2015

  18. Admin

    As long as you have a good record of your cash income and expenses, you do not need to pay it into a bank account.

    23 April 2015

  19. Lorraine

    I am currently working full time but have set up a sole trader company. My Business is obtaing work for two self employed therapists. Do I have to have employers insurance as they have their own. They will be carrying out work in various organisations.

    Regards

    Lorraine

    11 May 2015

  20. Admin

    You need to establish if they are genuinely self-employed. They are not necessarily self-employed just because you both say they are. It has to reflect the underlying reality of what is going on. If the arrangement you have is such that they are to all intents and purposes just like employees, then by law they are likely to considered to have employment contracts, in which case you would need the employers insurance.

    The fact that the have their own insurance (some form of professional indemnity insurance, I presume?), is not relevant to the question of employers insurance.

    12 May 2015

  21. Kate

    Hi,

    I have just been told by my bank that even though I am a sole trader, I will have to open up a Business Account as it is illegal to use my personal account. Is this correct?

    Thanks

    14 May 2015

  22. Admin

    Your bank are entitled to take a commercial decision not to provide you with a personal account that is to be used for business purposes. Other than that, running a sole trader business through a “personal” bank account is not illegal.

    14 May 2015

  23. Claudia

    Hi there,

    I need to register as self employed , but my address has changed since I received the national insurance number. Do I need to refer it to HMRC before registering?

    Thank you

    20 June 2015

  24. Admin

    No. Your registration form will include your latest address.

    20 June 2015

  25. Johnson

    Hi,

    If i setup an T/A account with the business name. Do i need to pay any tax or inform HMRC regarding this. Do i need to inform HMRC if i get money through do invoicing to the Ltd companies for the work i done for the company. Also i am not self employed. Please reply.

    My Small buisness structure will be as mentioned below.

    1) T/A Business accountcan be opened explaining to the bank that i trying to grow/start new business.
    2) I will do invoice for the service done to the ltd Company without charging VAT.
    3) I wil get money into my account . Do i need to do inform any department or HMRC.
    4) My income will be less than £ 30,000 in a year

    22 June 2015

  26. Admin

    I am confused by this comment. If you have £30,000 of income, of course you have to declare it to HMRC and pay tax on it. Why would you think otherwise? Surely you don’t think that opening a bank account is all it takes to avoid tax on that income?

    22 June 2015