Sole Traders and Partnerships
For a Sole Trader a business bank account isn’t compulsory; in practice it is for a company, LLP, or for a Partnership.
Some Sole Traders prefer the discipline of a separate business bank account, others the simplicity of one account for business and personal – it is a matter of preference.
For partnerships a bank account is in practice a necessity, so as to keep the partnerships business affairs separate from the partners personal affairs.
For a Sole Trader or Partnership there is no legal or tax requirement to have a separate business account; some banks may have in house rules prohibiting business transactions going through a personal account, and personal accounts may have a restriction in their terms about using them for business – banks may close them or convert them to business accounts if they see you running a business. As there is no precise definition of where sundry income ends and a business begins for banking purposes, scale and complexity matters – if you have a job elsewhere and teach one class a week, with a few small cheques being banked, it would be harsh if a bank required a business account for that.
Business bank accounts don’t have any special features about them; some people simply have a separate personal bank account that they keep for business, maybe with a different bank, for the discipline of keeping transactions separate, again depending on bank rules.
Most business accounts are not free – with charges starting from a few pound a month upwards. That said you may be able to shop around and find free business bank accounts – google is your friend – and most accounts have an initial free period, and some people simply change banks afterwards.
Its your choice whether you open a separate account at the outset, or wait for your business to grow. As a word of advice, if you approach them at the outset most banks will want you to open a business account – choose your discussions carefully. Satya and Asteya come into play here.
New to the market in recent years are Feature Business Accounts and Challenger Banks.
Challenger Banks are new entrants to the market which the Government has encouraged in order to bring innovation and competition, eg:
You will need to explore each as regards features and charges, and bear in mind some of them are pre paid debit cards with banking facilities rather then full service banks – that may not make much difference for smaller businesses.
Feature bank accounts help with tasks like Bookkeeping, VAT and Invoicing. These are comparatively new, and in our experience can suffer usability problems, but they are worth looking into – the features often change and get updated. Our advice is most businesses are currently better off keeping banking and bookkeeping/accounting separate, however some very small businesses will benefit from the integration. Invoicing features may be useful if you do corporate classes or send invoices for prepaid blocks of classes. In short, worth looking at, but often the practical use of these accounts is limited.
Limited Companies
Although there is no absolute law that says a company must have a business bank account, in practice it is mandatory.
If a company doesn’t have a business bank account, then the mixing of company and personal funds in a private bank account causes significant and expensive tax complications, and potential legal issues if the business were to fail.
To this end if you run a limited company you must operate a separate bank account in the company name, and keep business and personal funds separate.
The comments above regarding Challenger Banks and Feature Bank accounts apply as well.
