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What our Nerds say about sole trader business bank accounts
Sole trader bank accounts are designed for self-employed individuals. If you work for yourself, either part-time or full-time, and do not own a registered limited company, you are probably classed as a sole trader.
As a sole trader you have the option to open a standard business bank account. However, some providers also offer specific sole trader bank accounts, with extra facilities to help you manage your business’s finances. This can be particularly useful when it comes to filing your self-assessment tax return.
As a sole trader, you can manage your business’s finances through your personal bank account, but doing so can get complicated. Some banks may close your personal account if they find that you’re using it for your business. So it might be worth opening a business bank account for your sole trader activities to avoid this risk.
You should consider how much you’ll be using your account. If you’re a part-time sole trader you’ll likely use it less than if you were self-employed full-time. Being realistic about how you’ll use your account may help you only pay for the features you actually use.
Read on to find out more about sole trader business bank accounts in our guide or browse our Frequently Asked Questions.
What is a sole trader bank account?
A sole trader bank account is a business account for sole traders. If you are a freelancer or self-employed – meaning you’re solely responsible for your business’s success, and haven’t set up a limited company for your work – then you’re a sole trader. And you could benefit from a sole trader bank account.
Many banking providers allow sole traders to open standard business bank accounts, which offer features such as:
- bank transfers
- cash deposits
- overdraft facilities
- accounting software integration
- dedicated help and support
But some banks may also offer accounts specifically designed for sole traders, with helpful tools if you’re going it alone, including bookkeeping services and automatic invoice creation.
Certain accounts will also help you estimate the tax you will have to pay when you file your self-assessment return.
Do I need a business account as a sole trader?
No, but it may be advisable.
You do not need a business bank account as a sole trader – you are legally allowed to run your business finances through your personal account. This is because you, as a taxpayer, and your business, are considered the same legal entity.
That said, you may want to consider opening a separate business bank account. Although HMRC treats your finances and your business’s finances as the same, your bank may not see it that way. Using your personal account for business purposes is often against the terms and conditions. Banks can ask for you to open a separate business account or close your personal account if they suspect that you are using it for business transactions.
What is more, it is easier to keep your business’s finances organised and easy to read – one of your obligations while self-employed – if you use separate accounts for your sole trader transactions and your personal finances.
How to set up a sole trader bank account
You can set up a sole trader bank account in the same way as a standard business bank account. As a sole trader, you will usually need the following documents:
- photo ID – a passport or your driving licence, for example
- proof of address – such as a utility bill or a recent bank statement
- proof of business – documents that prove your business is trading, such as social media pages, invoices, or your Unique Taxpayer Reference (UTR).
» MORE: How do I open a business bank account in the UK?
Depending on the provider, your sole trader bank account may be opened on the same day that you apply. This is most common among challenger banks where you apply online or on a mobile app. If you’re accepted, you may receive your sort code and account number almost straight away.
On the other hand, traditional high street banks might take a little longer to open your sole trader bank account. But a high street bank might offer a better fit for your individual circumstances overall. It is a good idea to compare both types to help you find what works for your situation.
» MORE: What is a same day business bank account?
How to choose the best deal for my sole trader bank account
To get the best deal for your sole trader bank account, it’s worth shopping around. But before you look at everything on offer, you should pin down what you need from your business account.
You may want to ask yourself a few questions about how you bank, including:
- Do you prefer banking in person? You may want to pick a high street bank with a branch nearby.
- Do you like banking digitally? A challenger bank might offer the right solution for you.
- How many transfers or cash deposits do you usually make each month? If you make lots of transactions or cash deposits, you’ll want to look for an account where these are free or available for a low fee.
- Do you want extra features such as accounting software integration?
- Will you need an overdraft in future? Not all banking providers offer these, so it is a good idea to check in case you want to use one in future.
You should consider how often you will use your account, and which types of transactions you are likely to make most.
If you are self-employed part-time – say you work on your business in the evenings – you may not make many transactions in a month. In this case, you might want to look for a business account which charges per transaction, so you only pay for the features you actually use.
On the other hand, if you’re self-employed full-time, you may want to look for an account which does not charge for transfers or deposits, especially if you take cash. A business bank account that includes all features under a flat monthly rate could be more suited to your needs.
Once you know what you want from your sole trader account, you can compare what different providers offer and choose the account that best fits your needs.
» MORE: Do I need a business bank account?
Sole Trader Business Bank Accounts FAQs
A sole trader business bank account is a relatively straightforward business bank account aimed at people operating as a self-employed sole trader. These are often freelancers who have not set up their own limited company but who do want to keep their business finances separate from their personal finances.
They may also want access to some accounting tools that will help them to keep track of their income and outgoings related to their work, and help them to do things like raise invoices and complete their self-assessment tax return.
If you are self-employed but have not registered a limited company with Companies House, it’s likely that you are operating as a ‘sole trader.’ Just like with any business, you will have business income and business expenses and you will want to keep track of these so that you can complete your self-assessment tax return at the end of the year. Opening a sole trader business bank account can be helpful, as it will separate all of your business finances from your personal finances.
No. You are legally allowed to run your business finances through your personal account if you are a sole trader. This is because you, as a tax payer, and your business, are considered the same legal entity.
This varies from provider to provider, so it pays to do some research by comparing sole trader business bank accounts before you decide which one to open – or whether to open one at all. Sole trader business bank accounts are also often aimed at people with small limited companies and usually charge you in some shape or form.
Some will charge you a monthly fee, or maybe an annual fee. They may also charge you for transactions, such as a percentage of deposits made, or for using your debit card. Some sole trader business accounts will offer a free initial period, but will start to charge you after that period ends.
Again, this depends on the type of sole trader business bank account you open. Make sure you check that the account you are interested in offers all the services you need. Here are some of the services regularly offered by sole trader business bank accounts:
- Accepting deposits
- ATM withdrawals
- Bank transfers
- Bill payment through direct debit
- Standing orders
- Accounting tools
- Apps to track spending and balances
- Invoice tools
- Debit cards
- Online payments
Sole trader business bank accounts that are based online and do not offer credit cards or overdrafts are usually very quick and easy to open and you will often be able to do so with no credit checks. However, regardless of how simple the account is, you will always need a business address and will usually need to be able to give some simple information about your business activities to the provider.
If you have income from self-employment, you may have to set up as a sole trader. Sole traders have responsibilities including keeping accurate records and managing their accounts. You may also need to register for self-assessment. Find out more here.
Day to day, there is little distinction between self-employment and being a sole trader. But what is the difference, and how does it impact on you? Let’s look at the meaning of self-employment versus sole trader.
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