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Why you might need a separate business account

Written by: Mettle editorial
3 min read

The thought of having a personal account and a separate business account may seem daunting. In fact it might make things a lot simpler. In this blog we break down why you might need a separate business account.

Why you might need a separate business account

When you’re starting out as a sole trader or a limited company it’s often a good idea to set up a separate business account. Not only does it help with keeping track of your business finances compared to your personal spending, but it also allows you to keep an eye on things such as payroll, cash flow and invoices in and out of the company. 

If you’re a sole trader, having a business account isn’t a requirement but as a limited company, you need to have a separate account so that you can legally hold the money as a separate entity to your personal finances. 

If you haven’t yet set yourself up as a sole trader or limited company, check out our other blogs on how to do so.

Setting up a business account doesn’t need to be a slog either, some accounts just take a few minutes to apply.

Benefits of a business account 

Business accounts offer a number of advantages. These can include: 

  • The ability to have all your business transactions separate from your personal transactions and keep your business accounting simple 

  • Process any payroll payments from the same account 

  • Receive payments from customers 

  • Pay invoices 

How to set up a business account 

Setting up a business account isn’t actually as much effort as it may seem. If you’ve registered as either a sole trader or a limited company then you’ll commonly need: 

  • Proof of ID for the company directors and any PSC (people of significant control)

  • Proof of address 

  • Your business details including the registered address, the Companies House registration as well as contact details for your company 

You’re asked to provide this information as it helps the bank to evidence that you are who you say you are and also that your business is legit and active. 

As a sole trader, it isn’t necessary to open a business account but it might be easier to manage your finances if you do.

When it comes to doing your end-of-year accounts or tax returns, it will be more difficult and leaves more room for error when sending information to HMRC. And it’s easier to mix up your personal and business transactions if they’re all coming in and out of the same account.

How long does it take to open a business account?

Opening a business account takes a bit longer than a personal current account because there are more checks that the bank has to perform in relation to your business itself. 

Depending on the bank you are applying for an account with, the time the checks take can differ. If you're already with the same bank for your personal account, it could help speed up the process.

There are also a number of documents and questions asked throughout the application that, if provided, can help speed up the process. 

How does having a business account help with my end-of-year accounts?

End-of-year accounts always seem like the biggest job but if you’re having to sift through your personal account to pick out what was a business transaction and what wasn't, it’s going to take even longer. 

Having a separate business account for all your spending makes it much easier to keep track of your tax and VAT for your end-of-year. 

There are so many business accounts on the market now, some with different benefits to others and some that charge for the account and some that don’t. Take some time to figure out which is the best account for you before opening one.

Sound good? Apply now

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At Mettle, our aim is to give everyone the financial confidence to work for themselves, and that’s no different with our content. We want to give small business owners, freelancers and sole traders the tips, tricks and industry updates they need to run their businesses. 

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