Do I need a business bank account?

When you start a business one of the things you need to arrange is a bank account to enable you to keep your personal and business spending separate.

If you are starting as a sole trader/self-employed with just a little income initially it is tempting to receive it into your personal bank account and to pay for purchases from the same account.  If you do this it is important to keep track of both the income and the amount you are spending because it will be difficult to see at a glance how much the expenses are exceeding the income.  

If you are starting in this way there is no reason why you can't use a personal account but just be aware that if HMRC decide to come to inspect your accounts they will want to see your bank statements and they will then see all your personal spending as well as your business expenses.

If you begin trading as a limited company you must have a separate bank account for your business. 

Some banks will provide you with free banking for a period of time but after that you should make sure that you are on a charging tariff which suits how you use your bank account to keep your charges as low as possible.  If you will be banking a lot of cash you need to have a bank account which has the lowest charges for banking cash.  If you expect to receive cheques you would want to see how much you would be charged for each cheque you bank.  Electronic transactions- BACS payments, standing orders, direct debits and credits from your customers directly into your bank - should be free.

You will also want to check the charges for bounced transactions if this is likely to happen to you.  Some banks charge significantly more than others for these and a bounced payment plus a bank charge will be sure to put you in an overdraft.  Arranged overdrafts have an annual renewal fee with overdraft interest on top.  

There is a lot to consider with something as simple as opening a bank account and it makes sense to shop around to get the bank account which will suit your business best.  It is not difficult to change banks these days as all the direct debits and standing orders are moved automatically but it is not necessarily something you want to be researching again in 18 months time.

With the majority of accounts software now using a link to your bank to download transactions on a daily basis you will want to ensure you choose a bank that works with your accounts software - they don't all work!

Once you have sorted out your business bank account keep it just for business income and business expenses.  That way you will have a good idea of how solvent your business is.  If you pay for personal things from it you will never see a true picture and you will also have no idea of what your personal spending mounts up to - it could come as quite a shock at the end of the year, especially if you have a large personal tax bill to pay on it.  It is also much more work for you or your bookkeeper to record your personal transactions as well as your business ones and additional time that it doesn't make sense to pay for.  A much better option is to take a weekly, monthly or quarterly amount for yourself as the business can afford it.  

A bank account is just one of the steps to consider when starting your business.  Don't leave it too late to research so that you end up stuck without an account to use.  Some banks have a long winded process whereas others are quite straightforward.