Managing your business finances can be a real chore if you use your personal bank account for your business, or if you have a business bank account that doesn’t fit your needs. We often have contractors, sole traders, freelancers, locums and other self-employed business owners come to us having heard conflicting advice regarding business banking, and they’re unsure where to turn.
I’m self-employed, do I need a business bank account?
If you’re starting your own small business there are many factors to consider, and taking good care of your company finances is paramount. If you’re self-employed, you decide what work you do, when you do it, and how. You are the business and you have full control, and that includes choosing who you bank with.
The path of least resistance is to open a business bank account with the same bank you use for your personal account, but this isn’t necessarily the best decision for your business as service levels, perks and benefits can vary significantly between banks.
If you work through your own limited company, a business bank account is a legal requirement. You are a separate legal entity from your business, so your business finances must be entirely separate from your personal finances.
Having a business account isn’t mandatory for sole traders, however it is very beneficial. Once your gross trading income exceeds £1,000 per year, you become liable for tax and using a personal account for your business would cause you issues when it’s time to file your tax returns, as well as making it more difficult to manage your business finances day-to-day.
Therefore, if you’re using your personal bank account for your business, you may be causing yourself more issues than you’re solving.
What’s the difference between a personal bank account and a business bank account?
As the name suggests, a personal bank account is for personal use and typically would be used for everyday living expenses. Generally there are lower fees and less restrictions on personal accounts.
Business bank accounts are designed to handle more transactions than personal accounts and offer various additional features that are useful to businesses such as business loans, payroll processing and integration with accounting software.
Business accounts often have higher fees than personal accounts due to the additional features and services provided. Transaction limits will also be higher as businesses will tend to have larger, and more frequent, transactions.
The advantages of having a business bank account
Better organisation of your finances with separate business and personal accounts
One of the most significant advantages of having a business bank account is that it allows you to separate your personal and business finances. This makes it easier to track your expenses, calculate your taxes and manage your cash flow.
Easier accounting and bookkeeping
With a business bank account, you can easily track and manage your business transactions. You can access your account online or through a mobile app, which allows you to monitor your transactions in real-time, track your expenses, and reconcile your accounts. This makes accounting and bookkeeping easier and more efficient, especially when you integrate your bank account with accounting software.
Easily pay salaries
If your business was to grow and you employed staff to help manage the increased workload, it is much easier to pay salaries through a business bank account with a bank that provides payroll processing as part of their service.
Build a strong business credit score
Having a business bank account can help you build a strong business credit score, which will therefore help you to access business loans and credit that might not be available if you’re using a personal bank account. Lenders and investors are more likely to provide funding to businesses with a dedicated account, as it shows that the business is organised and has a solid financial foundation.
Receive payments by debit and credit card and improve cash flow
A business bank account can help you manage your cash flow more effectively. You can set up automatic payments and direct debits, which helps ensure that your bills are paid on time. Additionally, you can track your income and expenses more closely, which allows you to make informed decisions about your business’s finances.
Build credibility with suppliers and clients
Having a business bank account adds a level of professionalism and credibility to your company. It shows your customers, suppliers, and other stakeholders that you’re serious about your business and that you have a dedicated account to manage your finances.
Mettle by NatWest
In exciting news, Mettle, our business banking partner, recently made some changes and they now offer new customers a business bank account instead of their original e-money account.
Mettle, by NatWest, is 100% free with no charges or fees and has been designed for contractors, freelancers and small businesses, just like our accountancy packages here at Gorilla Accounting. It also syncs seamlessly with award-winning FreeAgent accounting software, which is provided free of charge to all our clients.
Unlike other business bank accounts, Mettle is completely free to set up and use. You can apply in minutes, send and receive UK payments and eligible funds are protected by FSCS up to £85,000.
Signing up to Mettle is so easy when you’re a Gorilla Accounting customer. You can learn more about Mettle and what they offer here and apply for an account in minutes here.
