Business Banking – Can you use your personal account?

Amaiz recently carried out a survey of small businesses to find out how many entrepreneurs use their personal account for their business. The results weren’t too surprising; just over 30% of the micro-businesses we surveyed do exactly that. If that’s you, why should you consider opening a business bank account? What difference will it make to your life and business?  Why is it more cost effective?

Legally you don’t have to have a separate business bank account if you’re not a limited company. If you’re a sole trader or a freelancer, opening a business bank account can seem like an additional hassle and, in the case of the high street banks, can be a significant additional cost. However, for most businesses, using the personal account for the business adds to the business costs. And the cost of a business account with the challenger banks is now tiny (around £9.99 a month with no hidden charges).

A key issue is that, without a separate account, it is difficult and time consuming to separate out personal and business expenditure. It is a costly administrative burden but, more importantly, you run a much higher risk of getting it wrong and being fined by HMRC. 

When we carried out our research, we also asked micro-businesses to tell us how much time they spend doing their admin. One in five micro-businesses told us they spend an extra day a week just managing their bookkeeping.  If that’s you, you need to consider; that’s time you could be spending on the business, delivering your service to customers, increasing your profits or working on business development, so it’s important that you reduce that time if at all possible.  

Many entrepreneurs manage their bookkeeping by catching up in the evening or at weekends, but of course, long term, that too will impact on your productivity. We all need down time. The alternatives are to get a family member to do it (often the cause of friction in families) or to pay someone else to do it, either a bookkeeper or an accountant. However, if you do that, you then need to consider the cost and intrusion of having someone going through your personal account to separate out the business costs.  

How do you record your business costs if you use your personal account for business?  Do you keep receipts on a spike on your desk or are they somewhere in your desk drawer, a wallet, or even floating around the car? All these options are common in my experience, and I’ve yet to meet anyone who looks forward to wading through their receipts. Even worse, too often, many of them are lost. It is easy to get it wrong too. That receipt that you found for B&Q, was it a business cost or did you buy something for the house?  If you get it wrong and make incorrect declarations on your tax returns (or you file your returns late) you will incur penalty fees.

A separate business account will make it quick and easy to report on business expenses.  Even the high street banks will provide you with a bank statement which will show you the details of all expenditure, even if you’ve lost the receipt. Many of the challenger business bank accounts will also allow you to digitally record and save receipts (so there is no need to keep those paper receipts).  And contrary to advice from some accountants still, HMRC prefer digitally saved receipts to the paper ones. The Amaiz app will even automatically categorise the expenditure for you.

However, a separate business account will not just save you hours a week on admin. It will also give you a much clearer understanding of how your business is performing. It is fairly common now for business accounts to link to accountancy software or, as with Amaiz, combine the two, which means that the bookkeeping and banking are integrated. This makes it far easier, for example, to check if you’ve invoiced a customer, or if they’ve paid. Some, including Amaiz, will now let you invoice ‘on the go’ so you can invoice that customer from anywhere from your phone.

I appreciate that many business owners are so busy working that opening a new business account can seem like added hassle that they don’t need. However, with the lock-down, now is a great time to make the transition. Of course, with the High Street banks, it probably won’t be possible, due to social distancing and their limited opening times (they need you to be present).