Your Banking Options as a Sole Trader
If you operate as a sole trader, contractor or freelancer, one of the decisions you will have to make is whether to use your own personal bank account for business purposes or open a new, designated business bank account.
Whilst legally, you can decide to use either, there are numerous benefits to opening a business account and keeping your personal and business finances separate. We have put together the following information to show you some of the benefits of having a business account so that you can make a much more informed decision.
Keeping everything separate is much easier
There is no doubt that having separate business and personal bank accounts will make life much easier. One obvious benefit is that your businesses’ cash flow does not affect your ability to pay your mortgage and other vital bills. Furthermore, when it comes to calculating your taxes and claiming business expenses, the process is made much simpler if you have separate accounts. You will also save lots of time when it comes to submitting your accounts etc., to HMRC if you have a designated business account – enabling you to be sure that everything used in that account is business related.
Saves your accountant time – and your money!
If you use the same bank account for business and personal purposes, your accountant will have a much harder time doing your books. This is in part because they will be forced to spend a lot of time going through your books and identifying what is a business expense and what is personal. This has two important consequences – first, this additional time will mean you will have to spend more money for their time. Secondly, it prevents your accountant from spending their valuable time examining your accounts for more important things, such as ways to reduce costs and providing you with helpful tax advice.
Embrace the future
There is no getting away from it, technology has changed the way businesses now operate. The internet and mobile technology now mean many operations can be performed with just a computer. One area of business that is seeing such a change is that of accounting. Traditionally done manually in a book, bookkeeping and accountancy software now means all such information can be inputted electronically. There are countless benefits to doing this, including preventing such important records being damaged or lost, as well as saving you a significant amount of time, effort and physical storage space. Regardless of the size of your business, bookkeeping and accountancy software is highly recommended. Perhaps daunting at first, modern software is now simple and straightforward to use, and can usually be picked up by users very quickly. Often linked to your business bank account, transactions are automatically calculated and recorded for you, eliminating the hard work for you. Again, whilst such software will make your life much easier, things will be more complicated if you do not have separate business and personal accounts as you will still be required to manually separate each transaction accordingly.
This is, of course, much easier to do when your finances are separate. Otherwise, everything will get pulled over and you won’t have saved yourself any time because you’ll have to go in and manually remove irrelevant transactions.
What type of business bank account is best?
If you have decided to open a business bank account, the next obvious question is what type. Whilst in the past, there were few options for business owners other than traditional High Street lenders, you now have a much bigger choice. Not only does this mean you can get an accountant more suited to your specific needs, but such competition means banks are offering much more competitive rates for businesses.
One type of bank that has grown in popularity with business owners – particularly small businesses – is online banks. Online banks are a natural progression from the popularity of operating online. Considered modern and flexible, these banks are proving especially popular with small online business owners. Online banks are in general cheaper than their High Street counterparts and often feature less stringent simpler application processes and requirements. This means that many business owners are now able to set up online business accounts entirely online and in some cases in just minutes. To help small businesses, online banks often also offer other useful tools to make life easier, such as tax estimation calculators.
If you have a personal account with a bank, it is understandable to think that having a business account with them would make things much easier. Whilst this may be true in many cases, you need to think about what is best for your business. Check conditions, rates etc., of your bank with that of others and base your decision from your businesses’ point of view.
As you can see, there are numerous benefits to opening a business account if you are a Sole Trader. From making the submission of your annual tax returns and Personal-Assessment much easier to enabling you to protect your home life from any business problems that may arise, these benefits can make a very real difference to you – particularly regarding your time. There is no doubt that running a business can be a busy, stressful lifestyle. It is therefore very important to find methods and tools that can make your life simpler, reduce your stress and ultimately free up some time for you.
By better managing your time, you will be serving yourself and your business much better. We hope the above information has helped shed some light on what type of accounts are available to you as a Sole Trader, as well as the benefits of having separate business and personal accounts and what these benefits can mean to your business.