theFIREstarter

This guy loves free business banking!!!

I’ve been procrastinating over my business bank account for nearly a year now! Yes, we are at the end of October and I still haven’t ticked that particular goal off of my list yet.

I nearly managed to pull it off. I was soooo close! I got down to the local Natwest and filled in all the forms, they sent them off for me and I was expected to hear back in 2-4 weeks. About 8 weeks later I had heard nothing and kind of just forgotten about the whole thing!

I finally rang the business banking department last week and, after having been transferred 3 times to “different” business bank account departments (How many do you bloody need, I found myself asking?!?!) and I was told that there is no record of me on the system at all.

“Computer says no!”

I would have to start again and it would be nearly an hour on the phone while we filled out all the details again, and then no doubt some other red tape to cut and hoops to jump through after that as well. I said no thank you, I’d have another look around online and get back to them if necessary

I was also concerned about the charges that business bank accounts have and was wondering whether there was any way I could get free business banking. After all, I’m not going to be making hundreds of transactions, it will just be being paid for a contract every so often along with a few expenses paid out of it. This is surely no more work or overhead costs for the bank than a personal account!? It then occured to me to ask the simple question:

“Do I even need a proper business bank account to run my company from?”

It turns out that in many cases the answer is “No!”

If you have set up as a Sole Trader you most certainly do not need a business bank account.

Look, even the Guardian says so.

So if you were a Sole Trader you could just set up a new personal current account, taking advantage of perhaps a nice sign up bonus*, and use that as a business account, thereby avoiding any business account fees. This can save you £300+ per year depending on how your business works and how often you make transactions! And whatever way you look at it, you have a free business bank account for all intents and purposes.

*If you can find one that doesn’t require you to transfer direct debits and pay in money that is!!! For example TSB are now paying £125 to switch but you will need to change over at least 2 direct debits and pay in £500 per month. I think I would leave that offer for setting up a personal account that will be used for business purposes, because you don’t want to be polluting the business transactions list with personal stuff

However, although initially easier (and free!) you still might not want to go down this route. From further research there are a few things you need to be careful or aware of:

DO NOT ever use this account for any personal transactions. You want to keep the new account purely for business transactions only. This will make your tracking your accounting activities a lot easier and also if the tax man ever comes knocking it will be more transparent and less likely to make them suspect you of fiddling the system (which you are clearly not doing, in any case. I hope!)

If you make a lot of transactions, for example if your business consists of buying and selling products, your bank may call you out on it and shut it down. It therefore follows that using a personal account as a business account is probably good for being a contractor or freelancer but bad for setting up your high volume/low margin eBay selling business. I can’t imagine many banks being ticked off by receiving some deposits every so often when your freelance contract is paid, and then likewise some business expenses that are related to that work coming out again, but as usual DYOR to double check the bank you choose won’t throw a total wobbly over it!

There is at least one other downside but it’s slightly more relevant to if you have set up a Limited Company, which brings us onto the question I found myself asking, having set up a Ltd company to run all my self employed stuff through:

“Can I run a Ltd Company through a personal bank account”

The waters were slightly murkier on this one, but the short-ish answer is that seems perfectly legal to run your Limited Company accounts through a personal bank account, but you must check your account T&Cs to make sure they allow this! Many consumer bank accounts will say it is against their rules and so if you use it for business purposes and they find out they can terminate the account immediately, which if you are expecting payments etc could put you in a bit of a pickle. So you go against the T&Cs at your own risk, you pays your money you makes your choice… etc… And if that does happen just remember, you ain’t seen me, right? 🙂

Now for the longer answer. The Guardian article linked to earlier actually says:

And if you set up a limited company or partnership that keeps your business finances separate from your personal finances you will definitely need one. (emphasis mine)

I also found a few other sources who reckoned it was mandatory such as this website here who state:

Whereas a ‘self employed’ individual can legally use his/her personal account for business purposes, this is not possible if you follow the limited company route, so you are legally obliged to open a dedicated account for the company.

So at first it seems we are treading on thin ice, until you realise that this website, while having some useful information on it, is actually in the business of charging £75 for setting up your business for you (presumably including your business bank account), so of course they would tell you that!

Moving on quickly to some first hand experiences from business forum post members which, although cannot be verified to be true, you would have to question why someone would ever lie about such a thing, and there seems to be quite a decent concensus from many members. There is a fairly long thread here for example:

Running a company through a personal account

Commenters “smallbeancounter”, “johngroganjga” and “NH”,  “teresaweezer”, and “lionofludesch” all agree that it is fine and legal to run a Ltd Companies accounts through a personal bank account. Bearing in mind this is an accountancy forum, I think it’s fair to say that it’s OK! Some choice quotes from this thread:

It’s not fraudulent to bank the company’s money in a personal account. lionofludesch

Lots of small businesses are run through personal accounts, including limited companies, because of very high bank charges for business accounts. smallbeancounter

And if you are worried about the inevitable tax man audit then check out this enlightening comment from teresaweezer:

… I am the director of my Limited Company, but the bank account is ‘classed as ‘personal’ with my bank.  The only transactions that go through it are for the Limited Company. I also have a number of clients who do the same, to avoid bank charges.  As these clients all have healthy bank balances, I do not see it as an issue. In fact, one of my clients had a tax inspection and the inspector was quite happy with how the records were kept, and the fact that bank reconciliations were performed each month, with any small personal items going through a DL account, she was more than happy.

There are a few more things to be aware of on top of those mentioned in the Sole Trader section. Check out this much shorter thread on the same subject here:

Limited company – does the bank acct need to be business?

Invoice from ABCD Company Limited

Please remit John Smith, Sort Code, Acc No.

Looks scam from day one.

I’m not quite sure whether I agree that it looks like a scam but I it is a fair point that it looks less professional than getting an invoice from “ABCD Ltd” and you pay into “ABCD Ltd’s” bank account.

Once again this points to this practice of opening a personal account for Ltd Company use to be best off when you are using the Ltd Company as a wrapper for your freelance/contract earnings. The reason being, it will be better off if you are doing work for people you preferably know or at least that you’ve met in person and trust that you are who you say you are 🙂

There is one other downside that I’ve thought of which is that your acountant may not like this practice and insist on a proper business bank account. This is evidenced by the replies from the accounts forum post I mentioned above, where there were a few differing opinions, some of which sounded like they were dead against this in principle. On the other hand there were many that thought it was OK, so if you need an accountant to run the ship then I guess you will just have to find that one that is fine with your situation. The other option is to not bother with an accountant and keep all of your records and file your accounting to HMRC yourself (this is what I intend to (attempt to) do FWIW).

conclusion

Setting up a personal bank account for either Sole Trader or Limited Company use can be a great way to get free business banking and save the hassle of going through the complex and time consuming process of setting up a business bank account in the first place.

Remember the main thing is to never pollute your “business” personal account with non business transactions! And also that your mileage may vary, do your own research and all the other disclaimers you can mention under the sun.

My own thoughts are that I seem to be ticking all of the above boxes in terms of where this practice is most appropriate, so I’m thinking why waste my time and money setting up a business bank account and just go with a personal one.

I’m sure there are plenty of self employed or side hustlers out there that have their own opinions on this so please let me know what you think of this idea below. Thanks!