You will find many articles on the web that will discourage you from using a personal bank account for a business. Most of these articles will include reasons such as difficulties in differentiating between personal and business expenses and the possibility of running into trouble with HMRC. However with the guidance of a good accountant and sound organisational behaviour you can reap the benefits of a personal bank account in business.
Disadvantages of Business account
- Business account holders need to pay fees which are not applicable to personal accounts. For instance a business that generates decent revenue is expected to maintain a minimum balance and are asked to pay a fine if they fail to maintain the minimum balance. A personal account on the other hand does not have stringent regulations regarding minimum balance and will not be fined unless they go into an overdraft.
- The rate of interest earned on available balance in a business account is significantly lower than that earned in a personal account.
- Many banks offer packages for business current accounts which adds to the overall operating cost of a business.
- There is a lot of paperwork involved in opening a business account and the terms and conditions specified in their fine print brochures can be difficult to follow.
- Huge fees are applicable on corporate business transactions
- You cannot withdraw as much as you please from your business account as there is a withdrawal limit imposed on your funds
What You Can Do Instead
- First Option: Using your primary personal account for business
This is an option most freelancers opt for. They select this option primarily because they could be uncertain for how long they will be freelancing before they join another job or decide to start their own business. If you are unsure about the prospects of your freelancing or business idea then rushing to open a business account may not be the wisest thing to do. Therefore it is advisable for small businesses to use their personal accounts in the initial stages, at least till the time their operating costs are still higher than their income.
- Second Option: Using a dedicated personal account for business
Using your primary personal account for business transactions can be quite complicated. It could also serve as an invitation for trouble from HMRC. If you have the confidence that you can justify all your business expenses and transactions from your personal account then there’s no problem. However, if you think it will be difficult to manage then you can always use a dedicated personal account for your business. This way you will be assured that all the transactions taking place from and to this account are strictly for business.
The biggest benefits of using a personal account for your business is that it is easy to operate. It is also a lot simpler to understand compared to the dynamics of a business current account. Apart from these benefits they are known to be more flexible than business accounts especially when costs are greater than income.
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