Hacks and Tips
4 mins read
Nov 18, 2022
I am a sole trader, do I need a business account?

Opening a business bank account may not be on top of your list as a sole trader in the UK. After all, your personal bank account works perfectly and there are lots of other important things to do like checking if your business needs a licence to operate in the UK. 

However, owning a business bank account is important, irrespective of your business type or size. In this article, we will explain how a business account is different from a personal account and why you need to own a business account as a sole trader.  

What is a business account?

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A business account is a bank account that is specifically for business transactions. It works like a personal account, but it is strictly for business-related transactions like receiving payments from customers, applying for business overdrafts, etc. 

Business accounts also have additional features that are not available to personal accounts. For example, you can integrate accounting software into some business accounts. 

There are two main types of business accounts: savings business accounts and current business accounts. As a business owner in the UK, you are more likely to open a current business account. 

Read more: How to create a business bank account as an immigrant in the UK  

Business accounts vs personal accounts 

As we said earlier, business accounts work just like personal accounts. For example, you can apply for loans, debit and credit cards, or overdrafts with a business and personal account. You can also set up direct debits and standing orders with both business and personal accounts. 

The main difference between personal and business accounts are their function. Business accounts are strictly for business transactions like receiving payments from customers while personal accounts are for everyday transactions like buying groceries. 

Business accounts also have additional features that help businesses manage their finances. For example, your account may have access to specialist business banking managers or you might be able to integrate tools and software to help you run your business payments. 

Do I need a business account as a sole trader? 

Legally, no. Unlike limited companies or some partnerships, you are not legally required to own a business bank account as a sole trader in the UK. This means you can choose to use your personal bank account for your business. 

However, there are a lot of benefits to opening a business account for your business. Here are 3 reasons why you should consider opening a business account as a sole trader: 

Business loans 

Having a business account will make applying for loans and overdrafts for your business easier. This may not be a priority if you are just starting out, but you might need a loan or overdraft in the future to pay bills, wages, or expand your business. Owning a business bank account also helps your business build credit, which is important to have if you want to borrow from lenders. 

Business account features 

A business account is primarily to help you manage your business finances. This means banks offer features, discounts, and other offers that are not available to personal account holders. For example, you can integrate accounting tools and software into most current business accounts in the UK. 

Business taxes 

As a business owner in the UK, you are legally required to report your business profits and pay taxes to the HMRC. Paying your business taxes will be harder and require a lot more paperwork if your personal expenses are mixed with your business expenses. Not having a separate account for your business will also make it harder to apply for some business tax benefits. 

How do I open a business bank account as a sole trader?

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At this point, you have probably reached the conclusion that opening a business bank account will be better in the long run for you and your business. Luckily, opening a business bank account in the UK is a straightforward process. 

However, 4 important things to keep in mind are:

  • The types of bank 
  • The type of business account the bank offers
  • The business account’s features 
  • The bank’s pricing structure 

Most UK banks ask for the following documents: 

  • Proof of UK residency i.e utility bills, council tax statement, etc
  • Proof of identity documents i.e Biometric Residence Permit, etc. 
  • Proof of business existence documents i.e Unique Taxpayer Reference (UTR) number, Companies House registrations number, business plan, etc. 

The requirements depend on the bank, so it is best to first check a bank’s website to see if you can meet its eligibility requirements.

Conclusion 

Although you are not legally required to open a business bank account as a sole trader, opening a business bank account will help you manage your business finances, apply for business loans, and easily pay your taxes with the HMRC. 

The good news is that opening a business account in the UK is a straightforward process and most traditional and challenger banks offer bank accounts that are tailored to sole traders and small business owners. 

If you are a business owner who frequently sends money to employees, contractors or suppliers in Africa, then Zazuu has the best business bank account for you. You can learn more about Zazuu’s Business bank account here.

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