What's the point of a business bank account?
Discussion
I've always been an employee - so forgive my lack of knowledge!
Mrs Puggit is considering setting up a small business. We were discussing lots of things that need doing, and the subject of a business bank account came up.
The way I see it is that you have to pay money for the account - so does a small business need an account like this, or can she use one of our personal bank accounts if she's the only employee?
Mrs Puggit is considering setting up a small business. We were discussing lots of things that need doing, and the subject of a business bank account came up.
The way I see it is that you have to pay money for the account - so does a small business need an account like this, or can she use one of our personal bank accounts if she's the only employee?
Puggitt
If your Mrs is going to be a sole trader in her name then she can use a personal account no problem (though some banks don't like it), but I would suggest that she uses a clean account and it's not used for any other than business transactions, otherwise it makes reconciling the bank accounts for the accounts harder.
If she is going to trade under a name then you will need a bank account in that name, or at least a trading as, or some kind of mandate to allow the bank to accept payment in the trading name - usually a business account.
If she is going to be a Ltd company, then she will definitely need a proper business account.
For records purposes it is much better to keep business and personal transactions seperate. Many banks offer free business banking for small turnover businesses for 12-18 months anyway, so personally I'd just open a business account and be done with it. (and a business savings account, to lodge extra profits and future tax/VAT payments)
Remember that also a business account will pay interest gross, you account for the tax through your accounts, whereas a personal account will pay it net (will make preparing the business accounts a bit more messy)
Hope that helps, I'm sure others will have more some experience too.
davidy
If your Mrs is going to be a sole trader in her name then she can use a personal account no problem (though some banks don't like it), but I would suggest that she uses a clean account and it's not used for any other than business transactions, otherwise it makes reconciling the bank accounts for the accounts harder.
If she is going to trade under a name then you will need a bank account in that name, or at least a trading as, or some kind of mandate to allow the bank to accept payment in the trading name - usually a business account.
If she is going to be a Ltd company, then she will definitely need a proper business account.
For records purposes it is much better to keep business and personal transactions seperate. Many banks offer free business banking for small turnover businesses for 12-18 months anyway, so personally I'd just open a business account and be done with it. (and a business savings account, to lodge extra profits and future tax/VAT payments)
Remember that also a business account will pay interest gross, you account for the tax through your accounts, whereas a personal account will pay it net (will make preparing the business accounts a bit more messy)
Hope that helps, I'm sure others will have more some experience too.
davidy
As far as I am aware then (assuming operating as a sole trader) yes she can use a personal account quite merrily as long as the proper records are kept and it all tallies for the tax man should there be an inspection then there is nothing to worry about. The main benefit is a element of credibility, asking people to make cheques payable to you personally always looks to my eye to be slightly dodgy and possibly a bit fly by night, you also wonder if tax is being paid etc etc - also to a lesser degree writing cheques with a company name on (even if it is XXX trading as XXX) look more established. This will matter to a greater or lesser degree depending on the area the business is in, some business are actually suit the small home trader image. Do have a look at the banking deals available, there are quite a few low/no cost initial packages (like free for the 1st year) and I think maybe even free ongoing if kept under a certain turnover - worth investigating
Also if she's a sole trader she is technically not an employee, she will pay tax/NI based on the profits of the business. If she is a Ltd company she will be an employee and the Ltd co will pay any Tax/NI due.
Personally in the words of EricMC - 'You need to talk to an accountant' - which is probably a very good step
davidy
Personally in the words of EricMC - 'You need to talk to an accountant' - which is probably a very good step
davidy
Heebeegeetee said:
Avoid a business account at all costs, I'd say.
They don't half cost you.
Not true. I negotiated 18 months free business banking with HSBC and when the period is up they are going to look at my banking profile. If I continue to make absolutely no demands on their counter service and don't bank lots of cheques they promised to keep it free.They don't half cost you.
UpTheIron said:
Heebeegeetee said:
Avoid a business account at all costs, I'd say.
They don't half cost you.
My company hasn't paid a penny in bank charges in the 5+ years it has been trading...and has earned thousands in interest in the meantime.They don't half cost you.
Edited by dern on Sunday 5th August 21:35
Puggit said:
I've always been an employee - so forgive my lack of knowledge!
Mrs Puggit is considering setting up a small business. We were discussing lots of things that need doing, and the subject of a business bank account came up.
The way I see it is that you have to pay money for the account - so does a small business need an account like this, or can she use one of our personal bank accounts if she's the only employee?
i would use a seperate bank account so that its definitely seperated from your personal accounts. plus, you can pay in with a trading name rather than cheques being made out personally.Mrs Puggit is considering setting up a small business. We were discussing lots of things that need doing, and the subject of a business bank account came up.
The way I see it is that you have to pay money for the account - so does a small business need an account like this, or can she use one of our personal bank accounts if she's the only employee?
also, use a different bank from where your main accounts are as they will probably try and link them. there is nothing worse than the bank moving money around for you...
Lloyds TSB took my first business on. Partnership account it was. 3yrs free banking, free accounts software and an advisor specific to my account.
Now I'm contracting I've set up a Ltd Company and an account with Lloyds. They considered it a business change over or something like that, another 18 months free banking in the bag.
Business bank accounts are like everything else in business involving charges and contracts, negotiable!
Now I'm contracting I've set up a Ltd Company and an account with Lloyds. They considered it a business change over or something like that, another 18 months free banking in the bag.
Business bank accounts are like everything else in business involving charges and contracts, negotiable!
Heebeegeetee said:
Avoid a business account at all costs, I'd say.
They don't half cost you.
Mine is free but my old bank only charged £3 a month , and then you paid for each cheque.They don't half cost you.
David's advice is right and I think there is a real danger in mixing business/personal money. We are all so used to seeing our bank balance and having an idea that as long as we don't go overdrawn we are OK. The business money will include your tax and NI liability and tour working caopital. If you over spend that you could be in big trouble. Knowing what you can and can't spend would require you to hard wire an Excel spreadsheet to your wallet IMHO.
I also think that having a separate account helps you monitor the business more easily: what invoices are being paid, what DDs are going out etc. I am running 2 lots of business accounts at the moment because we have changed banks and frankly it is hard work knowing what is where and for what purpose.
I have always had a 'tax' savings or term deposit account alongside the current account because I know the corporation tax won't be due for 9 months (in fact some of it you get to sit on for 21 months). I also keep any VAT we have collected in a savings account, even for a few weeks or a month as interest paid gross that is worth having. When else will the tax man let you sit on his money and earn interest on it for 21 months for nothing?
Think also about fraud and divorce. Mixed money will complicate things and put you at risk of being cleared out in one swoop.
Final point is that we got our first big contract we had to go to the bank for a loan because we would have no income for 3 months. The fact they could see a well run account not confused with our personal money I feel helped them decide to lend us the £25k we needed.
I use Abbey for my VERY small business. It is a completely no frills service - everything done by post/internet/cash machine but the charges are NIL forever and the interest paid isn't too bad. Apparently they aren't great if something goes wrong but if, like me, you're looking at a low volume of transactions then could be worth a look. Took about a week to get it set up, usual proof of ID and address required plus a copy of the company incorporation certificate that you get when you set a company up. HTH.
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