Setting up a new business requires you to go through some processes like conducting market research, choosing an accounting system and others. However, the part that is often ignored by small business owners is opening a separate account for their business. If you hoping to start a self-employed business in the UK, you are permitted to use personal account for your business transactions, though it is not recommended due to its shortcomings. Moreover, if you setting up a limited liability company, it is must to have a separate business account.
A lot of self-employed business owners avoid opening a business account due to the time it takes to go through the process. Having a business account is fundamental and very important to the success of your business. Mixing the two together could as well put you in problem with the HMRC.
Below are the reasons why you should not use a personal account for business transactions:
When you process your tax return, HMRC wants to know how much your business made during the period. With a separate business account, you can subtract some allowable expenses and calculate your taxable profit. It can be difficult to calculate accurately if your personal costs are mixed with your business transactions. A separate business account makes it easier to complete your tax return.
A business account makes your business looks more professional as clients will often prefer to make payments to an account that bears the business name rather than your own personal name. A business account also adds more credibility to your business. Issuing a check that carries a business name conveys more confidence to suppliers and customers.
With a business account and proper bookkeeping, you can easily monitor your business performance - your income, expenses, and also the deductions made on your business account. It will enable you to track your business financial strength. You will know how much you own and owe. All your business's transaction will be well organized. It will be easier for you to find specific transactions when needed. It will also prevent the mistake of mixing personal transactions with business transactions.
A business account offers similar advantages like the personal account, these include debit card, overdraft, cash and cheque handling, etc. You can also raise loan with a business account, obtain credit card and receive card payments from your customers.
Unlike personal accounts, business accounts attract monthly fees and transaction charges. You may want to check out different banks and their products so as to choose the package that meets your business needs. Furthermore, some banks offer charges-free period of a year or two when a customer opens a new business account.
No matter how small your business is, don't make the mistake of mixing your personal and business finances. If you have been using your personal account for business transactions and you are confused about how to set up your business account consult a qualified bookkeeper like Lukro Ltd. It will save you a lot of stress and time.
Written on 15-09-2019
This article was written by Agnieszka - a professional bookkeeper with several years of experience in the financial service industry. Agnieszka works with Lukro Ltd, the accounting and bookkeeping company provides professional and friendly bookkeeping and business support services to individuals, sole-traders, partnerships, and small businesses. We help welders, plumbers, engineers, electricians, hairstylists, beauty therapists and many more.
Starting a new business requires you to have proper planning, make necessary financial decisions and get the necessary legal documents. It can look a bit complex, especially for new small business owners; however, by taking informed steps, you can begin to build your business.
The COVID-19 pandemic is impacting most small and big businesses in the UK negatively and forcing business owners to find a new way to survive. Read more to find out how can our online bookkeeping services can help you stay in business.
A common misconception is that bookkeepers and accountants are the same. To hire the right expert for your business, you must understand the differences between an accountant and a bookkeeper.