Do I need a business account as a sole trader?

Setting up a business of your own? Or just looking to manage your business finances better? In either case, you’ll need a business bank account as a sole trader, and there's a few reasons why…

What’s a sole trader?

Let’s quickly get on the same page with what a sole trader is. A sole trader is someone running a business under their own name, they’re self-employed, rather than registering their business as a company (often called a limited company). Although technically speaking, the name of the sole trader business can be anything, not just your name.

A limited company (ltd company) means the business is legally separate from the owner of the business, and any assets (e.g. machinery or property), debts (money borrowed), and profit (money earned), are the company’s, rather than the owners.

This is called ‘limited liability’, and means that if the company went out of business and owed money, the owners wouldn’t personally be responsible.

Nuts About Money tip: if you’re thinking about opening a limited company, check out Tide¹. They offer a great free business bank account, and will set up your company for free.

A company will have an owner, or owners, normally called shareholders (if the company is run for profit), and are entitled to the profits of the business – just the same as a sole trader (self-employed). Each share represents a share of the company.

People who run the company are called directors, and these are often also the owners of the business (shareholders), but they don’t have to be.

It’s often the preferred way of forming and running a business in the UK, particularly if there’s more than one person involved with the business (for instance an employee, or a partner).

Note: there’s also different taxes paid for a limited company vs a sole trader. A sole trader will pay Income Tax on all of their profit, just like a regular full time job. Whereas a limited company would pay Corporation Tax (on profit). The business owner could then pay themselves via a salary (and pay Income Tax), or dividends (and pay Dividend Tax, which can be lower tax overall). It can get a bit more complicated and it’s worth speaking to an accountant or financial advisor if you need advice.

Do I need a business account as a sole trader?

Let's talk money. If you’re a sole trader running a business, you get to keep all the profit you make (whoop), apart from paying tax (boo). That means it can often seem like a good idea to use your own existing bank account, called a personal account.

And, you can use your personal account legally speaking. Only limited companies are legally required to open a business bank account, as the business finances belong to the business and not the owners.

However, a sole trader is required to keep ‘business records’, which is a record of business income and expenses. This can get very complicated to separate out from your personal finances, and so a very smart idea is to open a separate business bank account. You’ll need all of the information to file a Self Assessment tax return every year (how much you’ve earned, and how much tax you need to pay). If you want help, TaxScouts¹ can help you, their service is rated 5 stars.

There’s lots of software tools that can help you manage this, which only link with a business bank account. Particularly if you are registered for VAT and need to work out how much to pay to the Government regularly.

There’s also another problem, which is that almost all banks don’t want personal accounts used for business purposes – it can cause a bit of an issue when it comes to things like fraud checks and money laundering.

You’ll likely find in the terms and conditions of your personal account, that it says you ‘can’t use the account for business purposes’ – and you don’t really want your account closed and your money stuck for any period of time, you might have suppliers and partners to pay (alongside personal bills like a mortgage).

So, ultimately, although you don’t legally need a business account, in reality, it’s often a good idea to use a separate account for your sole trader business. There’s loads of advantages and really no negatives to using a business account, some are even free too.

Best sole trader business accounts

Ready to get your business account? Here’s our top picks of the best business accounts for sole traders.

Best business account for international payments

Best business account for savings

If you’ve got a fair bit of cash in your business account, you could earn interest (money) from it. Here’s your best option.

Pros of a business account

Not yet convinced a business account is right for you? Let’s run through the pros of using a business account as a sole trader.

By the way, business accounts work exactly the same as your current personal account – you’ll be able to use online banking via an app (or website) to manage your money, you’ll get a card to spend in store, or online, and withdraw cash from an ATM (additional cards can be requested too).

Here’s the advantages a business account offers:

• Separate your business finances and personal finances
• Banks will like you (they won’t if you use a personal account)
• They can be free
• Lots of features to help your finances (such as invoicing)
• Can help with tax admin
• Business loans
• Integrate with accounting software
• Receive foreign currencies (with the right account)
• Earn interest on your money

Let’s dive into a few of those in more detail.

Business account features

With the best business accounts (such as our recommendations above), you’ll have loads more features than your personal account – all designed to help you manage your business finances easily.

Free business accounts

Business accounts don’t have to be expensive – it all depends on what features you’d like. So, definitely don’t think a personal account is your only option because you don’t want to spend money on a business bank account.

Lots of the modern business accounts are free. Well, they’re not entirely free, instead of paying a monthly or annual fee like you would with traditional accounts, some business accounts will simply charge you for what you use – normally per transaction, which can work out to be very cost effective.

For instance, with Tide¹, the account is free, and you’ll simply pay 20p per transaction, and that’s it. It’s also similar with Revolut¹, and you can simply upgrade to a monthly plan if you want more features later on.

Receive payments directly from customers

You could accept payments from customers directly into your bank accounts without any middlemen (who would likely charge you more fees) – you can even create a unique link for each customer, which you can send over to them via email or SMS (text message). They simply click the link and it opens up their online bank account with all your bank details and the amount already entered.

Or you can receive payments in-person with a QR code, on your phone, or a card reader, and they can send money straight to you, instantly. And on your website too if you have one.

Invoices

With modern business bank accounts, you can also produce invoices for customers who aren’t paying instantly, for instance other businesses. These are essential to keep your records in order, and legally required if you are charging VAT – so having a business account that can produce invoices easily and quickly is a pretty handy benefit.

Integrating with accounting software

If your business is a bit larger, or you’ve got lots of business transactions coming and going, then in order to keep your finances in a single place (easily understandable and trackable), you could use accounting software.

Accounting software will also produce all the financial statements you need, such as how much money you made within the year (profit and loss statement), and how financially healthy your business is (e.g. the amount of debt, or assets you have (things like computers)), which is called a balance sheet.

If (or when) you do use accounting software, you can integrate your business account(s), and all your transactions will appear in the software (e.g. your sales and expenses), which will populate all the reports you need to manage your business, and work out how much tax you need to pay. It’s really pretty great. You wouldn’t be able to do this with a personal account.

Nuts About Money tip: if you are running a limited company, or planning to register your company soon, check out the best small business bank accounts.

Receive foreign currencies

If your business is trading internationally, for instance has customers in Europe, who pay in Euros, you can set up a business account that’s perfect for international payments – with low fees, and is easy to use.

Lot’s of high street banks and personal accounts prefer not to deal with international payments, or they charge (very) hefty fees for the privilege.

With a modern business account, such as Wise¹, or Revolut¹, you’ll be able to send and receive currencies from across the world, including US Dollars and Euros, all for a very low cost.

Earn interest on your money

As your business grows, the cash in your account will hopefully grow a lot too – and you’ll probably need to keep it there to help pay for expenses. But, if it’s building up to quite a lot, you might be missing out on making more money from it, rather than just sitting in your account not doing much – which is likely to happen if you use a regular personal current account.

Well, with certain business accounts (unfortunately not many of them), you can actually earn interest on your money while it’s just sitting around waiting to be used for expenses. If this sounds interesting to you, check out Wise¹, you’ll be able to earn a top interest rate on all of your cash in the account.

Let’s recap

To sum up, yes you will need a business account as a sole trader, although it’s not a legal requirement – but you’ll likely be going against the terms and conditions of your personal bank account, which could mean big issues in future, such as your account being blocked and not being able to access your money when you need it.

There’s also no need to use your personal account – business accounts are far better. They’ve got a wide range of different features to help you grow your business and manage your finances, such as invoicing, and easily receiving payments directly from customers, and for a low cost (or free). You could even earn interest on your money with Wise¹.

Best of all, business accounts are not expensive! There’s lots of free business accounts out there, and some very low cost, with all the features you need. Our top recommendation is Revolut¹, it’s free to get an account, and has pretty much every feature you’d ever want to manage your business.

And that’s it, good luck growing your business! If you’re keen to learn more about business accounts, check out our guide to the best business bank accounts.