The Importance of Keeping Personal and Business Finances Separate
Being organised in your finances plays a pivotal role in the success of your business. However, many self-employed and small business owners often fall into the trap of using a single current account, resulting in the merging of personal and business expenses.
While there is no legal requirement for a sole trader to open a separate business account, we strongly recommend doing so. Initially, it might seem a hassle, but it will help save you time, money, and also more informed financial choices. For a Limited Company there is a legal requirement to have a separate bank account as it is seen as a distinct legal entity Here are some compelling reasons why:
Streamline Bookkeeping, Saving Time and Money
When personal and business expenses mingle, bookkeeping becomes more time-consuming and if you’re paying an accountant this can quickly accumulate substantial costs. If you have adopted bookkeeping/accounts software for your business, it’s typically intended to streamline processes and save time but having those added expenses to check through will have the opposite effect.
Assist Tax Reduction
Separating personal and business expenses will help you claim back your allowable business expenses ultimately leading to reduced tax liabilities. This applies to sole traders, self-employed individuals, and Limited companies.
When your business expenses are mixed together with personal bills, identifying deductible expenses becomes a complex task. The situation worsens if you wait until the end of the tax year, to categorise expenses. Memories fade, making it easy to overlook valid tax deductions or mistake personal costs for business expenses, potentially resulting in penalties from HMRC during inspections – Do you really want HMRC or your accountant looking at your personal finances!