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Can I Use My Personal Bank Account For Business?
Can I use my personal bank account for business?
It’s one of the questions I’m asked the most.
Answer: yes and no.
I’m sharing the options freelancers take, the pro’s and con’s and whether it’s legal.
So you can make your own informed decision and get on with the important business of making money to put in your bank account.
What’s Your Legal Structure?
First though, I need to ask you if you’re a sole trader or a limited company.
(If you don’t know, read Am I A Sole Trader Or Limited Company? and Sole Trader Or Limited Company, What’s The Risk? )
Limited Company
If you are a limited company, your decision is made. You need a business bank account.
Your business is a separate legal entity to you and it needs its own bank account. You don’t need to worry if you have used your personal bank account so far, for a new business that’s normal. Your accountant can sort all that out for you.
What’s important now is that you open a business bank account. Read my article How To Choose A Business Bank Account for more information.
If you don’t have an accountant already, you need one.
I don’t do limited company accounts and it’s not something you can do yourself. Ask for a recommendation and look on Twitter. I can coach you so you’re confident knowing what your accountant is doing for you and what having a limited company means in normal English (costs, tax deductible, how you’re paid, how to reduce your accountant’s bill). If that’s something you’re interested in, click here for more details.
Sole Trader
If you’re a sole trader, you have more options and I’ll cover the legality of those options.
One point though. If you’re a sole trader you ARE a business. It means you’re not a company. (I know, it’s easy to get confused, it’s not your fault. Read my article here for more info about the difference).
Can I Use A Personal Bank Account For Business?
Option 1: Your Personal Bank Account As Your Business Account
This is a common option freelancers use when starting a business.
Starting a business sounds very grand. It can be as simple as you want to consistently work for clients and you are available and looking for clients (whether you have any or have been paid yet is a side issue). You’ve registered as a sole trader (how to do that here) and bob’s your uncle, you’re a business.
You use your personal bank account as your business bank account and you have personal and business transactions in the same account.
Pro’s:
- It’s simple
- It’s easy
- It gives you available credit by using your personal overdraft
- You don’t need to wait for the bank to do its thing
- You don’t need to go into a bank/bank website and justify yourself to a member of bank staff who has no idea what Twitter is (actually happened to me)
- You may not feel emotionally ready to open a ‘grown up’ business bank account
- It can give you more flexibility when costs are higher than income
Con’s:
- It breaks the terms and conditions of your bank account
- You can’t have ‘trading as’ on your account name, so you can have payments cleared addressed to you or your business name
- It allows you to pretend you don’t have a real business and be in your money power
- It takes time, money and sanity separating out your business transactions from your personal
- Some companies won’t hire you unless you have a business bank account
- You can’t claim bank charges and interest as tax-deductible expenses
- HMRC has an excuse to look into your personal affairs if you’re the random person they choose to check your business records
Remember, you can use personal credit/money to fund business investments (like coaching or a course) without mixing your personal and business bank transactions. You can start to do this at any time, even when you’re an established coach (good question, Kate Greenstock).
You can learn how to do this in my private Tax & Cake group on Facebook (search for ‘business bank account’ in the group). You can get access by buying The Tax Return Toolkit.
Option 2: A Separate Personal Bank Account As Your Business Account
You use a separate personal bank account as your business account.
Some freelancers use an account that was already open and others open a separate account.
Whether you use one or two personal accounts (maybe one for invoicing and another for expenses/saving for tax), it’s still personal. I recommend using only one bank account as more than one is chaotic, complicates your business and takes extra time you could spend working for clients.
Pro’s:
- It’s simple
- It’s easy
- It gives you available credit by using your personal overdraft
- You don’t need to wait as long for the bank to do its thing (personal accounts tend to take less time than business bank accounts to open)
- You don’t need to go into a bank/bank website and justify yourself to a member of bank staff who has no idea what Twitter is (actually happened to me)
- You may not feel emotionally ready to open a ‘grown up’ business bank account
- It can give you more flexibility when costs are higher than income
- You can claim bank charges and interest as tax-deductible expenses, only be ready for the argument that they aren’t since you’re technically breaking your bank’s terms and conditions
Con’s:
- It breaks the terms and conditions of your bank account
- You can’t have ‘trading as’ on your account name so you can have payments cleared addressed to you or your business name
- It allows you to pretend you don’t have a real business and be in your money power
- Some companies won’t hire you unless you have a business bank account
- HMRC has an excuse to look into your personal affairs if you’re the random person they choose to check your business records (although less of an excuse than if transactions are mixed)
A lot of freelancers do this as a temporary measure while they’re emotionally not ready for a business bank account or ‘just testing the waters’.
Option 3: A Business Bank Account
You use a business bank account as your business bank account.
Let’s cut to the chase here.
Hands up if the idea of opening a business bank account feels like I said there was an unexploded bomb in your lap.
Don’t panic!
Take a deep long slow breath, then let it out.
The first step to having a grown up business is a business bank account. That doesn’t mean you need to jump in the river if you aren’t emotionally ready to open one yet. It can take time to be ready.
(If you’re a limited company and didn’t read what I said at the top of this article, you DO need a biz bank account so go get one. Read here for more info about choosing.)
Put on your big girl pants and be in the space of looking at business bank accounts, reading the pro’s and con’s, asking about it in forums, communities and networking events. Ask freelancers who have been in biz a while what they recommend, their experience, and why. This is a ‘being in the space’ thing you need to do, as well as for information collecting.
It’s a perfect task to tick off when you’re in procrastination mood or it’s Friday afternoon and you don’t fancy working ‘properly’. This is proper grown up money stuff and feels like goofing off compared to writing copy for yet another client deadline. (Just don’t fall into ‘research’ as an excuse for taking no action’).
Let’s look at the pro’s and con’s of having a business bank account for your business.
Pro’s:
- You can have ‘trading as’ on your account name so you can have payments cleared addressed to you or your business name
- It allows you to feel proud of yourself that you have a real business and you’re in your money power
- You can claim bank charges and interest as tax-deductible expenses
- HMRC has no excuse to look into your personal affairs if you’re the random person they choose to check your business records
- You kick ass when after an appointment justifying yourself to bank staff who have little idea of business or digital or home working or online business (frequently the case if anyone from a bank is reading this), you have yourself a business bank account and you’re on your way
- It can be as simple and easy as filling in some forms, a half hour at the bank with a nice member of staff, new gadgets through the post and realising in your bank meeting that you really do know your marketing and planning stuff (actually happened to me)
Con’s
- It can be a pain in the ass when banks treat you like an idiot, take ages, have no idea about what you’re doing and patronise your femaleness and ability to earn
- If you have problems with forms, you’ll need to get a friend or biz friend to help
- You may have less access to credit and it costs more
- You need to wait for the bank to do its thing
- You could sabotage it if you haven’t dealt with your emotional stuff about money and having a grown up business
- You’re so pleased with your shiny new business bank account you start constantly checking the stream of incoming client payments, so your bank thinks you’ve been hacked and you need to spend time sorting it out
Deciding To Use A Personal Or Business Bank Account
The pro’s and con’s divide into the ‘sensible’ logical ones that you’ll find on any business website.
Then there are the ones no-one talks about.
That’s why it’s such a personal decision.
(Please bear in mind that technically, any option other than having a business bank account breaks bank terms and conditions.)
Which is right for you?
Does a business bank account feel like the photo on the left or the right?
Does a personal bank account for business feel like the photo of the left or the right?
Does a separate personal bank account for business feel like the photo on the left or the right?
It’s your decision as a sole trader whether you use a personal bank account for business or open a business bank account. (Limited companies, open a business bank account).
Take an informed decision from your heart as well as your head and keep it simple.
What’s right-for-now, if it isn’t opening a biz bank account now.
If you don’t have a business bank account, read How To Choose A Business Bank Account so you can look into opening one now or be ready for when it’s your next step.
Do you have a business bank account or use a personal bank account for business?
You can find out how to tax-deduct bank and finance charges in the Tax Return Toolkit.
Share with me in the comments.
