Should I have a separate business bank account?

Yes of course, is the short answer to this question. Even although it might be a hassle to set up a separate bank account for your business, and it might cost you a monthly service charge, it is absolutely worth it.

Here are the reasons:-

  • It makes it much easier for you to work out how well your business is doing because there will be no personal transactions to discount.
  • It makes it much easier for your accountant to do your accounts because he/she will not have to filter out all your personal non-business transactions, and he/she can assume that every transaction relates to your business. In most cases you will get better prices from your accountant.
  • If HMRC decide to do a Small Business Compliance Check, you will not have to show them your personal bank statements, because you will not have claimed any expenses paid from your personal account.
  • If you are running a limited company, your business bank account will not affect your personal credit score, or vice versa.

Of course there are some drawbacks:-

  • You need to carry two debit cards and have sufficient funds in your business account to purchase what you need. Or you need to use a banking app to transfer money whenever required.
  • You need to have some level of self discipline when using debit cards. i.e. you can’t use your personal debit card, just because it’s got more money in it.
  • If you don’t have sufficient funds in your business account to pay your monthly direct debits, you will need to transfer your own funds into your business account. However this is very common and as long as you clearly identify the transaction as “funds lodged” or “director’s loan” there is no problem with HMRC wrongly identifying it as ‘non-declared sales’.
  • You need to be prepared to be a ‘pest’ at Tesco and use the ‘Next Customer’ separator to separate your personal purchases from your business purchases, paying each in turn with the correct debit card.

Ideally, it would be an advantage to also have a business Credit Card. This offers much more protection when making purchases from unknown suppliers, and any interest you pay is tax deductible.