Not all businesses are required to have a business bank account. Many business that are not legally required to have a business account still decide to operate with one as they do offer many benefits.
The main differences in legality are that if a business requires banking and it is a limited company it must operate through a business bank account, whereas those that are run as sole traders or partnerships are not required to use a business bank account.
If you are staring a business and not sure about which is best for you you can find out more from these previous blogs:
Form a company with a business bank account included
Take advantage of a free fast track business bank account referral when you form your company through Inform Direct
Limited companies are not legally allowed to use a personal bank account for their business banking. A limited company is a legal entity in its own right and its finances must be segregated from personal finances.
Don’t let this put you off though, there are many benefits of having a business bank account and if you form a limited company through Inform Direct it includes a fast track business bank account referral that provides free business banking for 12 months.
It’s fine to be a limited company and not have a bank account at all, for example, it is often best for a dormant company to not have a bank account at all, as if it is charged a fee or accrues interest, it could stop the company being dormant.
Benefits of a Business Bank Account
Whether you are required to have a business bank account or not, there are many benefits to having one, here are just some of them:
- Simpler Finances – you may have many transactions going through your bank account (or you plan to have soon), mixing these in with your personal finances, as you can imagine, can add a level of complexity to your tax return or accounting that isn’t helpful.
- Business Credibility – your customers will have more confidence in paying to a business bank account over a personal account as it looks more professional.
- Tax Relief – business expenses can be deducted by legitimate businesses. If you are using a business bank account it will help you prove to HMRC that you are legitimate business and not a hobby, or not for profit business.
- Taking Card Payments – whether you plan to take card payments physically or online you need a business bank account to be able to receive the funds from the merchant bank account.
- Business Credit Cards & Loans – if your business is looking to take out a business credit card or loan, you will need a business bank account.
- Free Period – there are business bank accounts aimed at new businesses that offer a free period (usually 12 months), this helps new businesses establish themselves before they start having to pay a (usually modest) fee for the account.
Sole Trader or Partnerships
Sole traders and partnerships are not required to have a business bank account, but many do, and it often depends on if they desire any of the benefits mentioned above.
If you are planning to use your personal bank account then do check the terms and conditions of your account. Many personal bank accounts stipulate that they can only be used for personal banking and not by a business. Where this is stated and the bank notice the account is being used for business transactions they will likely request that you open a business account but could go as far as closing your personal account.
Do you need to complete company secretarial functions for your company, like submitting confirmation statements? Inform Direct makes this simple, create an account today and give it a try!