Do you have a separate bank account for your creative business or side hustle? If not, why not?
Opening a separate bank account means you could:
- Save yourself time!
- Save yourself money!
- Keep your privacy!
You must have a business bank account if you’re running a limited company. If you’re a sole trader, HMRC does not require a separate account, but it is best practice.
Some banks will freeze personal accounts when they suspect you’re running a business through it. This worry finally pushed me to open my business bank account: imagining all the payments that go out every month not being made – rent/mortgage, energy, internet, etc. – sent a cold chill down my spine!
Once you have opened your separate bank account, though, enjoy the benefits!
Save yourself time
You’ll save time by not having to wade through all your personal expenses to find your business income and expenses. How much time do you currently lose trying to work out at the end of the month or year whether this or that payment was business or personal?
Save yourself money
If you remember to pay for all your business expenses through this account, it’s swift and easy to make sure you’ve claimed all of them as business expenses, ensuring you don’t pay too much income tax.
Keep your privacy
It also means you can share your business finances with people who need them without sharing your personal finances, too.
These people could include HMRC, a bank or other lender for a loan, a council or other organisation for a grant, your future bookkeeper or accountant, or perhaps a prospective business partner.
Find a business bank account
There are several free business bank accounts and many more free for up to 2-3 years, so there’s no reason not to have one.
If you’re a sole trader, you may even be able to use a free personal current account – check with the bank.
A few convenient comparison tools are:
Things to consider when choosing your business bank account
- You’ll want to choose one with no or low fees, good customer service, and that plays well with the rest of your business.
- If you haven’t yet started using accounting software, you might want to opt for Mettle, NatWest’s digital bank. It comes with FreeAgent accounting software for free.
- If you have started using accounting software (such as Xero, QuickBooks, or Sage), make sure the bank will talk to your accounting software. If you can automatically pull in transactions, it saves you time typing them in and reduces errors from typos (which reduces hair-pulling later on). When researching, look for what bank feeds are supported by your accounting software.
- If environmental concerns are important to you, you’ll want to choose a bank focused on sustainable finance. The nonprofit organisation Ethical Consumer and Good with Money are two places that can help you here.
- If you frequently deal with cash and/or cheques, you’ll need one where you can easily deposit these with no or low fees. Some banks let you take a photo in the app to deposit cheques.
- If you don’t want to use an app for your banking, make sure you don’t opt for a digital bank like Starling, Mettle, or Monzo, which can only be accessed through an app.
- If you are always on the go, you’ll need a bank with a good phone app that has full functionality.
- If you are always on the go, you might want to be able to link your bank card to Google Pay, Apple Pay, Samsung Pay, etc. Check that the bank you choose supports the payment methods you want to use.
- If you do better with charts and graphs, look for an app that has those so you can better visualise your cash flow.
- If you struggle to remember what payments out you have coming up, look for an account that sends you reminders of expected payments ahead of time.
- If you want to be able to save towards different things (such as your income tax & NIC bill), look for banks that offer ways of subdividing your account. This way, you’ll earn interest on your whole bank balance, but you’ll be able to see the separate pots of money. Monzo calls these pots; Starling calls them spaces. For some bills and some banks, you can also set them up to pay out of these pots, which can be quite handy.
- If you need help with budgeting, some banks offer that function, so look for one that does.
- If you need to operate in multiple currencies, look for a bank that supports that. If you receive payments where the customer pays, say, Paypal, in Euros or Dollars, but you receive Pounds, then you aren’t operating in multiple currencies. Only if you need to hold Euros, Dollars, or some other currency yourself are you operating in multiple currencies.
- If you frequently need to set up new payees to pay your expenses, you’ll want to choose a bank that makes this instant and easy. Some still make you wait a few days after initially setting up the new payee before you can pay them, which doesn’t work for most businesses.
- If you travel abroad for business, you’ll want to check to make sure there are no limitations on the bank account that would keep you from being able to run your business whilst abroad.
Misunderstandings and Common Mistakes
You can pay for your business expenses using any payment method. If you come up short in your business bank account, pay it out of your personal account –keep the receipt, so you remember to claim it as a business expense.
If you’re VAT-registered, make sure you keep the VAT receipt (this is the one that shows how much VAT you’ve paid). You frequently have to ask for this, so always check before you leave the shop.
If you’re running a limited company, all invoices need to be in your company’s name , not yourself.
I hope that’s helped you gain the confidence to choose and open a business bank account if you don’t already have one! On top of everything mentioned above, it’s also sure to help you feel more professional. Now go forth and open one – save yourself time and money, and keep your privacy!