No doubt about it, being in self-employment gives you the freedom to work for yourself. But how can you survive as a self-employed or freelancer? Do you really need a self-employed business bank account if you are self-employed?
First of all, what’s self-employment, and how does one get into it? Self-employment simply means you are working for yourself. It means you are your own boss and you are accountable to nobody but the government’s “tax office”.
As a matter of fact, self-employment means working for yourself which also means you can manage your own salary. It also means working wherever you want. In short, being self-employed gives you the privilege of choosing your own workspace.
Self-employed Business Bank Account
All businesses are required to accurately keep financial records for some government departments such as Inland Revenue. This is one of the reasons why you need a business bank account, especially, if you are self-employed.
If you’re self-employed and based in the UK, keeping your business records is required. You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year. Failure to keep records means you could face a fine of thousands of pounds from HMRC.
Having a business bank account is legally required if you are operating a Limited Company. However, there is no legal requirement but highly recommended by HMRC if you are a sole trader or self-employed.
Also, having a separate business bank account is good to protect your privacy. It means you keep your personal finance privately to yourself and no need for your accountant, lender, or bookkeeper to see all your personal transactions and what you spend your money on.
Still don’t know why you should open a business bank account as a self-employed? Below are some of the benefits of opening a business bank account if you are self-employed.
#1]. For easy record-keeping
The importance of record-keeping can’t be overlooked when it comes to running a business. You may have a great business tool like QuickBooks to help you with bookkeeping, but having a business bank account could also help.
The fact is that opening a self-employed bank account will help you to easily and quickly identify all your business transactions. It will mean being able to easily sort your financial dealings without the clutter of all your personal spending.
#2]. For better cashflow management
Finance or money is essential when it comes to running a business. If you are self-employed, being able to manage your cashflow is even much more important. Having a business bank account will help you to easily manage this.
The fact is that you wouldn’t want your personal bank transactions to mix with business transactions. This is surely not a healthy way to run a business. It could make it hard for you to understand your business financial dealings.
#3]. For being professional
When you are self-employed, you are the brand and it’s important you keep everything professional. Having a business bank account will make people (clients) take you more seriously and professionally.
The simple fact is that if you act like a business, your clients will surely treat you like a business. So, asking your clients or customers to pay into a dedicated bank account will make you look credible.
#4]. For the fact that it’s cheap to open
Opening a business bank account is not as difficult and time-consuming as it used to be. Also, the business banking market now offers more options and benefits than before.
Nowadays, banks offer incentives and deals to convince you to open an account with them. Some banks are even offering free accounts, no transaction fees, or other financial rewards. So, what are you waiting for?
#5]. For borrowing
There are times when you will need to look for a loan to be able to take your business to the next level. Borrowing from banks may be the only available option for you in this kind of situation.
However, whoever is interested in giving a loan will ask to see your business bank account. You wouldn’t want to give your personal account instead if you don’t want to complicate your loan application.
#6]. For tax purpose
Being able to know the right amount of Tax to pay is very important. However, this could be problematic if you mix your personal transactions with business dealings. This means you risk expenses getting incorrectly allocated as drawings meaning you end up paying too much personal tax.
Be aware of the fact that HMRC guidance states you should keep separate business and personal bank accounts. This is the best way to go about it so that your personal expenses will not be allocated as business expenses.
Importantly, you can easily link your bank account with a bookkeeping tool like QuickBooks to keep up-to-date with all your financial transactions as they happen.
#7]. For frozen bank accounts
Do you know that HMRC and Inland Revenue now have the power to raid or freeze your bank account? Government departments and agencies have been given the power to freeze your bank account if you owe tax or they are suspicious of you in any way.
Now, just imagine using your personal bank account as your business account and it got frozen? Don’t get caught up and find yourself in a difficult situation. Open a separate business bank account and spread the risk.