Many contractors worry about the hassle and burden of setting up and managing a business bank account. This week, a question came from an individual who is considering moving from an umbrella company to a limited company service but is concerned about the additional pressure of having more administration relating to their business bank account.
To help him and anyone who might be having the same concerns over banking options, including yourself, we have put together this blog to help alleviate stress, and dispel the myths and pressure of a business bank account and let you know why it is essential to have a business bank account separate from your personal one.
Question: “Do I really need a business bank account for my limited company? Can’t I just use my existing personal bank account?”
Your questions answered:
It is strongly advised not to use your existing personal bank account for your limited company. As the saying goes, ‘never mix business with pleasure’. The same rule applies to your contracting career and finances.
Operating as a contractor for the long term by setting up a limited company is a serious business venture and you should be prepared to treat it as such. Being a professional will be key to your success as a contractor and is essential for the success of your contractor business.
Some assume that it is quicker, cheaper and easier to start your contracting business using your current bank account. You may think it is simple to keep a clear and separate record of your personal finances and business related transactions, but in reality, it will not be long until there is confusion and a lot of work for you to clear up the mess. Our blog will breakdown the questions you ask us and explain the importance of having a business bank account.
Q: Why do I need a business bank account?
A: As a contractor, not only will having a business bank account keep your personal funds separate from your business funds, but it is also a legal requirement in the UK to keep business and personal finances separate. As a business owner you need to be able to show your accounts are transparent should HM Revenue & Customs (HMRC), or any other authority, ask to see your finances or business transactions.
As per the law, a limited company is a separate legal entity from you, the employee, which means that it has its own income and expenses, will pay its own taxes and will enter into contracts with clients. Therefore, as a Director of a limited company, you should operate in way that reflects this by separating your personal and business affairs.
The business bank account will be used for accepting payments for services rendered and paying business expenses incurred in the performance of services. If transactions cannot be easily separated to differentiate between your personal and business transactions, HMRC may want to investigate and carry out a full audit of your limited company. This would be to ensure that your business transactions reflected in the limited company’s accounts are a ‘true and fair view’ of the company’s finances.
Q: What type of business account should I sign up for?
A: You should look for a bank account that provides useful services and low bank charges. A business current account is the most common option and many high-street bank accounts will offer these types of accounts.
It is recommended that you select a bank that provides your accountant with read-only access to your account. This means they can see when an invoice payment has been made and advise you of the recommended amount to take as salary and dividends. It makes the process much smoother and allows your accountant to notify you quickly of when and how much you can pay yourself as per our tax-efficient recommendations.
Q: What name would appear on my business transactions?
A: As a limited company contractor the name of your limited company would appear on all payments.
Your clients will only be able to make a cheque or bank transfer payment in your company name. For example, if your company is called ‘We Work Hard Ltd’, this is whom all payments would be made to.
Q: How easy is it to open a business bank account?
A: With Fusion Business Services, the process is very easy. Our experts can guide you through the advantages and disadvantages of the three banks we work with and have experience in helping thousands of contractors to choose the right bank account for their needs.
Our dedicated team will also talk you through the processes of checking your business bank account. Should you need to make any payments for expenses, we can talk you through how to do this.
Benefits of having a separate account for business banking
In addition to having your finances in order and your personal banking separate from your business banking, you will also benefit from:
- A professional appearance. If you are sending out your payroll details to your client on an invoice, you will be able to present professional business bank account details for them to transfer your payments.
- A clear separation of finances for your Personal Tax Return. As a contractor with your own limited company, you will need to complete a Personal Tax Return, otherwise known as a self-assessment. It is, therefore, vital you are not sifting through one bank account in an attempt to find some clarity on which transactions relating to your business and which are personal. Separation will make this easier for you and your accountant when you come to completing your annual Personal Tax Return.
- Time is money and if you are spending hours of your time going back through bank statements in an attempt to decipher payments relating to your business, you are wasting money. This time could be put to better use and would not be wasted on such a painful task if you had a business bank account.
With the help of a UK contractor accountants such as Fusion Business Services, you will find that your business bank account is easy to set up and manage. Our all-inclusive service includes invoicing, payroll and bookkeeping. Therefore, we can let you know when you have been paid and advise you on the recommended amount to pay yourself.
Our limited company accountancy service gives you the time to focus on your work and helps you make the most of your business.
Not only do we help with your business bank account, but our service also provides you with:
- A dedicated Account Manager
- Qualified accountants with vast expertise
- In-depth knowledge of the contractor market
- Personal Tax – free advice
- Quarterly VAT returns
- An online web portal, easy to use for expenses and timesheets
- Set up of limited company within 24-hours
- Invoicing, payroll & and bookkeeping and full administrative support
- Instant access to your advised take-home pay figure
- And more.
Contact us today for more information
To speak with one of our experts for more details on business banking or to set up a limited company for your current contact or the next one, please call Fusion Business Services on 0800 2294020, or request a free consultation using the form on this page.
Our team helps thousands of contractors run their businesses with ease each year and we look forward to helping you do the same.
