Jeff Salway
Suzanne Worthington
Kristina Fox
Denise Ko Genovese
If you’ve decided to change from sole trader to operating your business as a limited company, then you may already know that your accounting obligations change. Your new limited company will need its own bank account because the company’s money must be separate from your personal finances.
Can I use the same bank account if I change from sole trader to limited company?
You can’t use the same business account if you change from operating as a sole trader to a limited company.
This is because the money in a sole trader account belongs to you and you’re liable to pay income tax on the money coming into that account. In contrast, the money in a limited company account belongs to the company, which is legally separate from you, and the company’s income is taxed separately from your personal income.
Banks often can’t simply flip a switch to change your account from sole trader to limited company because they have different processes for managing the different types of business accounts. They need to collect different information, for example a limited company has a company number allocated by Companies House.
» MORE: Do I need a business bank account?
How do I change my business account from sole trader to limited company?
Changing to a business bank account for a limited company is straightforward:
Apply for a new business account as a limited company
- Banks that offer accounts for small businesses often offer accounts suitable for both sole traders and limited companies.
Close your old account, or keep it open
- When you’ve transferred out any money remaining in the sole trader account, you can ask the bank to close the account or keep it open in case you need to use it again in future. Banks are within their rights to close ‘dormant’ accounts so if you don’t use the account for a few years, you might get a message to say they’re closing it.
- Staying with the same provider? They might insist you close the sole trader account. Many banks allow you to have multiple business accounts and there’s no legal reason why you can’t – for example, if you run one business as a limited company and have another where you act as a sole trader. But some providers, especially challenger banks, have their own restrictions.
Start using your new limited company business account
You’ll need to:
- Cancel Direct Debits and standing orders on the old account and set them up on the new account (unless you’re using the Current Account Switch Service, as this will move them automatically).
- Download any statements you need from the old account.
- Update your invoice template with the new details.
- Tell customers to use your new details.
- Update any companies you’re paying by recurring card payment.
- Update your saved payment details next time you buy online.
- Add your new account details to any third party apps which aggregate your financial information.
You’ll also need to tell HM Revenue and Customs (HMRC) that you’re changing the legal structure of your business, and if you have business insurance, you must also inform your insurer. Changing from a sole trader to a limited company could have an impact on what you’re liable for, and the types of cover you may consider.
» MORE: How to choose whether to register as a sole trader or limited company
Can I use the Switch Service to change from a sole trader to a limited company account?
You can’t use the Current Account Switch Service if the details on your old and new bank accounts don’t match. This can include the legal status of your business. So if your old account is a sole trader account and you request to use the switching service to move to a limited company account, your banks may reject the switch.
If you’re unsure or have questions about whether you are eligible to use the Current Account Switch Service, it’s worth reaching out to your new banking provider or contacting the Switch Service directly for more information.
Image source: Getty Images
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