A sole trader is not legally required to sign up for a bank account. However, your personal account can be used for business purchases or staff salaries. A business bank account is beneficial for cash flow and VAT purposes.
The UK has 75% of sole traders. This means you can run your business, but not a limited company. You can keep all profits of your business after taxes, but you also have to pay any losses or debts that your business incurs.
A limited company would need a bank account. This could be from a bank with a high street name like Santander, Natwest, Lloyds, or Anna, or a bank that is a challenger bank, such as Monzo or Tide. A bank account is required for all business activities. For example, you can pay a salary via PAYE or a dividend on the profits after corporation taxes. Notifying HMRC is a must for a sole trader as well as filing a self-assessment is necessary.
Why Should A Sole Trader Get A Business Bank Account?
A business bank account enables you to keep your income and expenses organized. It will also keep you safe from any miscalculations or overlap. It is more professional to invoice people using a business account than you do a personal one or ask for cash payments.
When you open a business account, you will get some basic benefits such as online banking, checkbook, credit card, and overdraft options. However, a sole-trader business account can provide many benefits.
The perks of Business bank accounts are quite different from personal ones. While some accounts may provide cash back or vouchers, sole trader’s bank accounts offer more perks, including access to a bank manager and free business advice, as well as discounts on products and services such as online accounting software.
Why Is It Important For Sole Traders To Have Business Bank Accounts?
You must calculate how much tax you owe as a sole trader. You won’t see your tax taken out monthly by a PAYE system so keeping track of your accounts will help you avoid accidentally spending money that you have to pay HMRC on 31 January. You can also opt for Accounting Services London to solve all your accounting purposes.
It’s a good idea to look at how much money you spend and generate when you are self-employed. You can use this information to identify ways to increase your profit margins, such as changing your supplier or raising the price of certain products or services.
Advantages Of A Business Account
First, opening a business bank account can help you save a lot of time. Barclays estimates that sole traders and freelancers in the UK spend 15 days per year separating business expenses from personal accounts. When you open a separate bank account to earn self-employed income, this restriction is eliminated.
Second, you will have access to financing for your business. If you are only a person, it is unlikely that a bank will approve a request for business-related loans.
You’ll also have better visibility into your cash flow. You may also be less likely than others to misstate expenses because they are all in your business bank account. This gives you more clarity.
It Can Be Easier To Calculate Tax With A Business Bank Account
It doesn’t matter if you do it yourself or hire an accountant to help you, this is much easier when you have a bank account for your business. A business bank account allows you to see cash flow clearly without having it mixed up with other finances. This will save you and your accountant time, as well as stress.
It’s Easier To Track Expenses
Separate finances can make it easier to track expenses and work out your taxes. To claim tax relief for business expenses, you will need to keep track of all your expenses and submit them to HMRC as part of your tax return.
If you only look at your business account, it’s much easier to see business expenses. You will need to go through all transactions to determine which expenses are business and which are personal if you have a personal account.
How To Choose The Right Business Bank Account?
A small fee is usually charged by business bank accounts when you withdraw or pay in money. Some accounts may also have a monthly or quarterly fee. You can sign up with some banks for an introductory deal where your first 12 months are completely free. Shop around to find the best Sole trader accounts in London.
Pay attention to the extra benefits offered by different banks for business accounts. Compare the transaction fees and overdraft limits for a variety of business bank accounts to find which offers are most suitable for you and your company.