Sole traders often wonder if they need a business bank account when launching their new business; in this article we will discuss whether a sole trader needs a special bank account, what kind of business bank accounts might be appropriate, and how you can make the cut if you choose to go down that road.
Do I need a business bank account?
Regardless of whether your business is your full-time job, a side hobby, or a start-up aiming for global dominance, you really ought to keep your cash flow organized. However, do you require a business bank account? It depends on how you run your company: sole traders do not legally need to have a separate business bank account but getting one can be very beneficial to your business and can simplify your accounting and taxes.
And if you are likely to have a positive balance in your bank account, you might also want to consider setting up a business savings account that will provide a better interest rate on your savings.
Can a personal bank account be used by a sole trader?
Sole traders may use their personal bank accounts but opening a business account has several advantages. It could make you seem more established by enabling you to use your company’s name on the invoices you send out or receive.
Watch out, though, as fees for self-employed company accounts are generally higher, ranging from £5 to £15 per month. Other advantages to opening a business bank account as a sole trader are:
Easy bookkeeping
If you have a separate company debit card, you can keep records of financial flow easily and quickly.
Identifying the income and expenses you make as a business is critical for monitoring your small business’s financial objectives and adhering to your business strategy.
In case you already have separate business and personal bank accounts, you can agree that filtering out the personal and business expenses is way easier this way.
Simplify your taxes
Taxation is already a hassle but keeping a distinctive sole trader bank account can make it easier.
Your tax payments will be much simpler to submit because you won’t have to sort through months or years of expenditures to determine which money was spent for business and which was for your pleasure.
Better protection
Separating your personal and business expenses can also assist you in protecting yourself.
If you ever go through a tax investigation by HMRC, you must be ready to produce paperwork for all of your business activities.
This process is much simpler if you’re able to show a separate account that’s used solely for business purposes without having to filter out your personal expenses.
Access to business funding
If you want to get a business bank loan or other types of company financial support in the coming years, you’ll almost certainly need a business checking account.
Due to their desire to confirm your business’s working capital, most banks require you to hold a business bank account to be eligible for funding.
Can I Get A New Bank Account As A Sole Trader?
Yes, a sole trader can activate a personal or professional bank account to conduct business.
There are fewer options for a sole trader bank account compared to a limited company, but the high street banks or online-only banks such as Tide bank will offer a business current account for sole traders.
Opening A Bank Account As A Sole Trader
There are various types of everyday business bank accounts (often called checking accounts), with fees normally based on the number of transactions you make each month – so think how often you’ll need to pay a supplier or receive money from a customer. Take a look at Tide bank which offers quick setup and great support
Prepare All Your Paperwork
To start a business bank account, you must be able to verify your details and authenticate your business.
Depending on the state, country, or council you are part of, there are several documents you need to provide, such as the ones we have further below.
Submit An Application For The Account
Many commercial bank accounts make it possible for you to apply fully online.
Look for a bank with physical branch locations close to your home if you would like to apply on-site.
Details A Sole Trader Needs To Present When Applying For A Business Bank Account Online
To apply for a sole trader’s business bank account, you will usually need:
- Your trading name
- Your trading address, which could be your home address
- Your personal ID or other forms of personal proof of identity
- The nature of your business
- The month and year you started trading
Do I need a business bank account as a sole trader?
A business bank account can provide numerous benefits to your new business venture.
You will be able to secure funds for it effortlessly and establish banking relationships that will enable you to obtain a company credit card.
So, if you are ready to start running your business as a sole trader, apply for a business bank account today!
