Keep business and personal bank accounts separate?

knighterrant

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My wife has a small hairdressing business that she runs from home working alone and less than full time. She doesn't turn over big money but it gets us some nice holidays every year. A few years ago she had a much larger business with a few staff and a turnover in excess of £250k. At that time she had a business account. But since downgrading to working from home we now mix her business banking with our joint personal account. This saves any bank charges, and in fact the bank pays interest on balances.

I've read in many places that it's a bad idea to mix personal and business bank accounts, but the reasons provided seem pretty feeble to me. The main reason, they say, is to make it easier to keep track of the business accounts. But I have accounting software that I use for everything - business and personal. It's easy to use and very easy to extract everything I need when completing my wife's tax return for instance. I keep on top of all our personal and her business finances all the time.

We can't envisage a time when we'll ever have to borrow money for the business, and she's never needed overdraft facilities (even when she had the big salon). So is there any reason why she should have a separate business account?
 

Scott_F

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I think HMRC like the two to be kept separate but don't insist on it.

Banks seem to view business banking as an opportunity to milk a cash cow and levy charges willy nilly.

With such a small turnover, she could open a separate, non-business current account and use that for her business without incurring the business account charges.
 

Red C220

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There's no legal compulsion to have a business account. Especially if you're not dealing with VAT.

As long as you keep clear records and have the ability to differentiate between business and personal then just use a personal account.

The upside of that is you get free banking.
 

scgfull

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Only thing I can think of is: Will the Taxman regard any money going into your personal account as income and expect to tax it accordingly. If you keep it separate then there is no question until it is actually transferred.

As regards bank charges - have a look at Santander for free business banking.

Steve
 

Dryce

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It's better in principle to keep separate accounts.

Makes it a lot easier if one of the branches of the HMRC wants a look - and also makes it easier to avoid confusion as to what is business and what is personal.
 

Red C220

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There's no legal compulsion to have a business account. Especially if you're not dealing with VAT.

As long as you keep clear records and have the ability to differentiate between business and personal then just use a personal account.

The upside of that is you get free banking.
Actually I'll just EDIT this by adding there is a legal compulsion to have a business account if you are a Limited Company (and also a LLP I think) but that is determined by the legal status of a business.

As a sole trader I'd do what is suggested above and simply open a "number 2" personal account and put any business transactions through that, then there's your separate "business" account.
 

zipdip

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It is not likely to happen to you but if you were getting business loans,then it would pay not to have your personal account at the same bank ,if the business ran into trouble,guess where they are going to get their money back.
 

JGMercedes

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I would go for a separate personal banking account, you don't have the ridiculous charges of a business account but then it's kept separate from the personal funds. Also helps to keep track of how much money the business is (or isn't) making
 

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We have two current accounts.

The "houses" current account handles all the rental income and expenditure and I transfer an monthly amount from it into the personal account that runs our domicile and family related expenditure.

I pay no bank charges, however, every now and again the bank query the income going into the "houses" account, suggesting it should be classed as a business account - though they've never taken it any further.
 

HughSurrey

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I have always maintained a separate business account as I was advised that, even if I used a personal credit card to pay a business expense, then HMRC could go through your personal credit card statements, and ythe same would apply for personal accounts. Dont know how true it is, but makes sense (to me) to keep them separate in any case.
 

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I would have seperate accounts with different banks. If you can, both personal accounts to avoid the charges
 

Mrhanky

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Personal account terms and conditions will state it must not be used for business purposes.

They can close your account for breaking the T&C's. In reality I doubt it would ever happen but it could happen.
 

jaymanek

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Why not just open another personal bank account and use that for the hairdressing.

If HMRC ever inspect your books, your current set up will give them reason to go trawling through everything including if you have tried to claim for your sunday night vindaloo.
 

Meldrew2

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What jaymanek says.

You may feel that you are completely honest and above board. Trust me, when HMRC have finished, you will not feel that way.

Plus - the costs of your part of the investigation (accountant etc) will increase dramatically with a single account serving business and personal use.
 

markjay

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What jaymanek says.

You may feel that you are completely honest and above board. Trust me, when HMRC have finished, you will not feel that way.

Plus - the costs of your part of the investigation (accountant etc) will increase dramatically with a single account serving business and personal use.
As above.

As a general rule, it is always a good idea to keep things as simple and clear as possible.

When dealing with HMRC, most people think that the right thing to do is to have a good explanation and be able to answer any questions raised by the tax inspectors.

Not so.... the right think to do is to make sure that they will have little to ask about in the first place, and for you to have as little explaining to do as possible.

With any setup or transaction, you should ask yourself whether an impartial observer will immediately understand clearly what is going on.... if your actions are only clear if you explain them, find a better way of doing it.

That would be my advice....
 

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