I'm setting up a business. Do I need a business bank account?

There are lots of things to think about when you start up a business and one of the things you need to consider is whether to have a business bank account.  If your business is starting small as a sole trader with just a little income initially it is tempting just to receive it into your personal account and to pay for purchases out of your personal account.  There is no reason you can't do this but if HMRC decided to come to inspect your paperwork would you want them to review all the transactions on your bank statement?

Having a business bank account separates your business from your personal spending and enables you to easily see if your business spending is exceeding your business income.  Some banks provide free banking for the first 12 months for new businesses and although charges may be applied after the free period there will be a choice of tarrifs to suit your type of banking and therefore ensure you are paying the least amount possible. 

A business bank account is therefore a good idea and if you are a limited company you should always have a separate account.  

We do see business owners who use their business bank account as an additional personal account and pay for all sorts of things from it.  Whilst it is not wrong as personal expenses can be put to a personal drawings or directors loan account, using your business bank account for personal spending creates more work for yourself or your bookkeeper trying to identify and record only business expenses.  It can also be difficult to identify business from personal if you can't remember what you bought and it would then have to be put to your personal account. 

Paying yourself a regular amount from your business account to your personal account will ensure your accounts are more easily maintained and reconciled and will keep the costs down if you choose to ask a bookkeeper to do your books.   And when HMRC visit to do a records check you will only need to give them access to your business bank account records.

So the answer is definitely a Yes to a separate business bank account.  Keep your personal spending separate.  Of course, any business expenses which you have paid from your own pocked can be reimbursed to you tax-free.