Do i need a business account? if so why??

[simpson7647]

hi all, im going to start my own online shop which will be able to account paypals through the usual paypal and i would like to be able to accept credit cards too.
The question is, what advantages do i get over having a business bank account and do i need one?

thanks

[elainec100@cheapaccounting]

If the business is a limited company then it must have a separate business account - it is a separate legal entity.

Sole trader - you can use your own. Most prefer not to for practical reasons.

[kontracta_com]

It depends if you are going down the sole trader or limited company route.

If it is limited company then the short answer is 'yes' as the company is a legally separate person to you. You can shop around though and get some free element to your banking for between 6 months and life. Speaking from experience though, service can vary. A lot (!)

If you are a sole trader then banks will either encourage or insist that you get a business account - however it isn't a legal requirement as you and the business are one and the same. It can save money if you just have a personal account but you don't get any advisors (which may or may not be good). All I'd say though is that if you go that route, get a second account that is just used for business. It helps you separate out what is business and personal - plus it doesn't give your accountant nightmares and a chance to put the bill up!

[MyAccountantOnline]

hi all, im going to start my own online shop which will be able to account paypals through the usual paypal and i would like to be able to accept credit cards too.
The question is, what advantages do i get over having a business bank account and do i need one?

thanks

I agree with the first two answers. The only thing I'd add is that if you want business banking facilities from your bank they will insist you have a business account, and if you are making fairly extensive use of a private account for business purposes they will probably realise and insist you have a business account.

The only real advantages to a business account are -

1. The ability to use business facilities offered by your bank
2. Having a business overdraft - if required.

Some people take advantage of various options offered to business account holders too eg Barclays have a cheap data back-up service for business customers etc.

[simpson7647]

hi there, okay you for all your input.
Im going to be a sole trader so i guesss its not necessary but best to so i can keep personal and business apart as someone said.
Although saying this, atm i use a natwest account for personal, and my abbey for business so what do you all recon i should do?

thanks all

Ryan

[Jacqui_Volantis]

I have a limited company, and my accountant has told me I don't necessarily need to have a separate business account, as long as I can clearly show the income and outgoings from my business versus anything else that is coming in or out of my personal bank account. The replies above make me think I have not been given the correct advice.....

[MyAccountantOnline]

I have a limited company, and my accountant has told me I don't necessarily need to have a separate business account, as long as I can clearly show the income and outgoings from my business versus anything else that is coming in or out of my personal bank account. The replies above make me think I have not been given the correct advice.....


I'd ask them to clarify the advice;)

[Williams lester]

I have a limited company, and my accountant has told me I don't necessarily need to have a separate business account, as long as I can clearly show the income and outgoings from my business versus anything else that is coming in or out of my personal bank account. The replies above make me think I have not been given the correct advice.....

That is correct, you have not been given correct advice! Probably!! If you bank company money in your personal account, then you are in effect borrowing that money from the company and may be liable to pay interest and corporation tax on the overdrawn balance on your DLA. Ask them again if this is what they are recommending.

[Jacqui_Volantis]

Thank you very much for the advice. I will be calling my accountant in the morning!

[Eagle]

Go for a business account - eventually, you'll be charged business banking rates on your personal account. :)

[sanjiv]

I have a limited company, and my accountant has told me I don't necessarily need to have a separate business account, as long as I can clearly show the income and outgoings from my business versus anything else that is coming in or out of my personal bank account. The replies above make me think I have not been given the correct advice.....
The bank account would have to be in the name of the limited company because it is not your money. It belongs to the company.

It is different with a sole trader because a sole trader is basically a trading name for yourself where the money is yours.

That is why you see the difference between employed and self-employed.

[simpson7647]

What business bank account should I go for presuming I do,
thanks all

[Eagle]

Try: http://www.moneysupermarket.com/BusinessChequeAccounts/CommercialChqAccForm.asp :)

[shampa]

Yes go for a Business Account.Banks won't allow you to deposit personal funds into a business account nor add business funds into personal accounts if you are a limited company. If you are a sole trader then you can continue to use your current account but will need to split the business and personal expenses for your accounting.

[kontracta_com]

I went through Money Supermarket when deciding on my account.

I'd never recommend a certain account anyway just in case if anything rebounded on me but I can honestly say the answer is 'it depends'. You can get free banking from most for a certain period of time and one I have used gives it for life - but it has to be said that I got what I paid for in my opinion(!)

If you are after service then you may have to pay more for it. If you're not or the bank's package is really a gesture aimed at getting more fees in then by all means go for the cheaper option.

Either way, good luck with the sales spiels!

[simpson7647]

Okay many thanks to all, ill shop around :)

thanks all :)

[Geoff T]

I have a limited company, and my accountant has told me I don't necessarily need to have a separate business account...

My congrats to the respondents to this... well held folks!;)

Jacqui - hope the chat this morning produced the correct answer:)

[Jacqui_Volantis]

Hello all again

I don't want to put a spanner in the works but I have had a long conversation with my accountant this morning (he's an ex Inland Revenue tax inspector who has moved to the dark side!) and he has absolutely reassured me that I don't have to have a business bank account - yet. I have a limited company, I'm a Company Director, and I am not currently VAT registered as my income is not yet at the threshold for VAT registration. He told me that if/when I register for VAT I will definitely have to have a business bank account, but until then, it is perfectly ok for me to invoice my clients under the name of my company, but ask them to pay me (rather than the company) - as long as I can clearly show any income and outgoings from my business and have bank statements to show what has been paid in, etc. It's not that I am averse to having a business bank account - it's just that I haven't got round to it and it hasn't been the top of my list of priorities. I will set one up at some point. (I personally feel reassured by my accountant - but I would definitely recommend that others should check it out with their own accountants - as individual circumstances vary and you need to feel comfortable with the advice you've been given.)

By the way, for anyone looking for a business bank account - if you are a member of the FSB - they have a relationship with the Co-Op bank which offers free banking to all FSB members - for ever (I believe) - sounds too good to be true - but I think that's the case.

Thanks to all who replied to my earlier post.
Jacqui

[David Griffiths]

(he's an ex Inland Revenue tax inspector who has moved to the dark side!)

A fully qualified Inspector of Taxes, or an HMRC of a different grade? With what training in Company Law? What training in company accounts preparation?

I don't think that he is right, so that's at least five of us on here. I'm not going to go into detail about the adverse consequences about trading a limited company through your personal account, but ask yourself why he says you need to have a company account when you register for VAT. There is, as far as I am aware, nothing in the tax law that requires you to have a business account just by being VAT registered. But there is a question on the VAT registration form that asks for the bank account details including the name on the account.

If he is so certain that it isn't necessary to have a company account, why wouldn't he just fill in your name and bank account details in answer to that question?

[spidersong]

HMRC don't, and cannot, dictate how you do your banking, there's nothing within VAT law that forces you to use a separate account, unless they've managed to sneak in some draconian laws restricting personal choice along with the draconian amendments to the penalty and surcharge regimes, without anyone noticing in the tax community.

True they'd always prefer that you did have one and will always look at your bankings when visiting, but if you want to put all your money in sainsburys bags and bury it in 20 secret locations aroung the UK there's nothing they can do about it.

VAT law does identify a Ltd company as a different legal entity to a natural person, or sole prop, so a ltd co. using a personal account is basically creating a joint account without telling the bank, or the personal account is banking someone elses money, presumably without any written agreement to do so, either between the parties or with the bank. As others have said this would be making the money available for use to the person whos account it is and would need to be reflected in the co.s accounts as a loan, or an adjustmetn to the DLA depending on whose account it is etc. Possibly also give BIK implications if an employee or director (but don't quote me on that I'm largely indirect tax only)

So basically put me down as six or seven or whatever number we're up to now.

(Posted by an Ex VAT inspector who's moved to the dark side, or light side, depending on your point of view)

[decworld]

Who cares which bank your money goes in/out off.

If you read into every tiny piece of legislation and try and follow them all you would never get anything done.

Common sense and not petty rule following should be the order of the day.

[sanjiv]

It is not which bank, it is the name on the bank account. A limited company is its own entity so the money belongs to that company.

[elainec100@cheapaccounting]

So just suppose .....

The funds for sales received are in the directors personal bank account and not in the company account.

I would record that as a loan from the business to the director.

And then the tax consequences of that need to be taken into account. :p

[David Griffiths]

Who cares which bank your money goes in/out off.

If you read into every tiny piece of legislation and try and follow them all you would never get anything done.

Common sense and not petty rule following should be the order of the day.


Great stuff. That's the kind of attitude that keeps HMRC inspectors in work.

[elainec100@cheapaccounting]

Common sense and not petty rule following should be the order of the day.

I shall try to use that approach in an HMRC appeal :D:D

Oh if only life were that simple :rolleyes:

Don't disagree with the sentiment but the execution may be wanting :(:(

[jeffbearcroft]

Hi Elaine

You say "must have a separate bank account".

Isn't it possible to use an unrelated bank acccount (possibly a personal bank account of the shareholders or that of a another company operated by the shareholders) and then treat any cash transactions as loan account movements on behalf of the relevant company?

I should appreciate your thoughts.

Many thanks

Jeff


If the business is a limited company then it must have a separate business account - it is a separate legal entity.

Sole trader - you can use your own. Most prefer not to for practical reasons.

[taxattack]

Hi Elaine

You say "must have a separate bank account".

Isn't it possible to use an unrelated bank acccount (possibly a personal bank account of the shareholders or that of a another company operated by the shareholders) and then treat any cash transactions as loan account movements on behalf of the relevant company?

I should appreciate your thoughts.

Many thanks

Jeff

Could be fine provided you take account, among other things, of Companies Act 2006 ss 197 (loans to directors, requirement for members' approval), 213 (loans etc, civil consequences of contravention), the various provisions relating to directors' duties, liabilities and minutes of meetings, S386 (duty to keep accounting records), and the very extensive accounts disclosure required by S413 (information about directors' benefits: advances, credits and guarantees).

Chris

[jeffbearcroft]

Hi Chris

Yes that was my thought too. It's not compulsory is it?

And for a company just starting off, no doubt they could operate without a separate bank account for some time if they wished to.

Your references to directors' benefits presumably only apply if the loan account goes into debit? And even then, by charging interest on the loan balance at HMRC official rates and properly reviewing the position at the year end, it's not really a big deal is it?

Regards

Jeff

Could be fine provided you take account, among other things, of Companies Act 2006 ss 197 (loans to directors, requirement for members' approval), 213 (loans etc, civil consequences of contravention), the various provisions relating to directors' duties, liabilities and minutes of meetings, S386 (duty to keep accounting records), and the very extensive accounts disclosure required by S413 (information about directors' benefits: advances, credits and guarantees).

Chris

[elainec100@cheapaccounting]

As I say you would need to ensure that the directors account is maintained.

Assuming that you have a profitable company then the likelihood is that the bank balance could exceed £5000 - see loans to directors over £5k.

Chris has given you the relevant sections to research - as long as you comply with those then I am sure you will be able to do as you please with the bank.

[taxattack]

Hi Jeff

AFAIK there is nothing in legislation which says "a company must have its own bank account", and of course there is little policing of the Companies Act provisions. Having said that, I would say that on balance life is simpler with a company bank account than without.

Chris

[jeffbearcroft]

Hi Chris

I fully endorse your assessment of the position.

Obviously if anyone else can suggest why this is not the case, I should be keen to hear from them.

Regards

Jeff

Hi Jeff

AFAIK there is nothing in legislation which says "a company must have its own bank account", and of course there is little policing of the Companies Act provisions. Having said that, I would say that on balance life is simpler with a company bank account than without.

Chris

[jeffbearcroft]

Hi Elaine

I agree with you.

Just to clarify, even with a company making profits, if dividend distributions and directors salaries (at below the NI threshold) were charged appropriately to the loan account, it could be comfortably maintained within the £5,000 limit for some time.

It just needs someone looking after the accounting that knows what they are doing.

And of course, as I said earlier, interest could in any event be charged on larger debit balances so as to avoid benefits-in-kind assessments.

Regards

Jeff

As I say you would need to ensure that the directors account is maintained.

Assuming that you have a profitable company then the likelihood is that the bank balance could exceed £5000 - see loans to directors over £5k.

Chris has given you the relevant sections to research - as long as you comply with those then I am sure you will be able to do as you please with the bank.

[David Griffiths]

Hi Elaine

I agree with you.

Just to clarify, even with a company making profits, if dividend distributions and directors salaries (at below the NI threshold) were charged appropriately to the loan account, it could be comfortably maintained within the £5,000 limit for some time.

It just needs someone looking after the accounting that knows what they are doing.

And of course, as I said earlier, interest could in any event be charged on larger debit balances so as to avoid benefits-in-kind assessments.

Regards

Jeff


That doesn't take account of the fact that the company's corporation tax money will be in the director's personal account at the end of the year. That could well make a nasty dent in the calculations.

And if the account is overdrawn year in year out, it won't be long before the Revenue are asking about what used to be called s419 tax.

[David Griffiths]

I'll also throw in to the ring the fact that the Companies Act 2006 requires much more comprehensive disclosure of loans to directors and strictly requires disclosure of each and every advance to the director.

Still, I'm sure that you are reporting all of those properly and don't mind the work involved.

[elainec100@cheapaccounting]

I'll also throw in to the ring the fact that the Companies Act 2006 requires much more comprehensive disclosure of loans to directors and strictly requires disclosure of each and every advance to the director.

Still, I'm sure that you are reporting all of those properly and don't mind the work involved.

For all my limited co clients I insist on a limited co bank account - so much easier :)

[jeffbearcroft]

Hi David

Yes of course you are 100% correct.

But if we go back to the original question by someone about to set up a new business, one of the replies indicated it was compulsory to have a business bank account (use of the words "must have"), which I think we all now agree is not strictly accurate?

For a start up business, it could be run for some time without it's own bank account.

Your s419 point is a given (if the loan account is in debit), which is why in one of my earlier posts, I said provided the loan account is reviewed at the year end.

Would I recommend that a company operate without a business bank account for a sustained period of time? No. I would not.

Would I say it "must have a business bank account"? - well, No. I wouldn't say that either. Because I believe that would be factually incorrect.

That is really the only point I was getting at.

Regards

Jeff
That doesn't take account of the fact that the company's corporation tax money will be in the director's personal account at the end of the year. That could well make a nasty dent in the calculations.

And if the account is overdrawn year in year out, it won't be long before the Revenue are asking about what used to be called s419 tax.

[taxattack]

Hi Jeff

AFAIK there is nothing in legislation which says "a company must have its own bank account", and of course there is little policing of the Companies Act provisions. Having said that, I would say that on balance life is simpler with a company bank account than without.

Chris

I would have better said "little routine policing of the Companies Act provisions", and added that chickens come home to roost in cases like insolvency and HMRC enquiries.

Chris