5 reasons why you should separate personal and business finances

The more cynical readers will say that business bank accounts were created by high-street banks to charge more for the same banking services as personal current accounts, just under the guise of business banking. We’d like to say they're wrong, but we believe in transparency at SumUp, especially when it comes to money and pricing.

Simply put, business accounts are a current account for your business banking needs. You can do the same things as with a personal account, only in the name of your business. Some accounts are a bit fancier, but essentially all high-street banks offer the same product, with varying degrees of inflated pricing.

There are a number of reasons why you should separate your personal and business finances, which we’re going to cover in this article. These reasons are rarely generators of chargeable value, which means that having a business current account probably won't lead to more new business or sales for you, which is why the SumUp Business Account is free.

1. You'll need to open a business account eventually

Being a sole trader is an empowering experience and the first step of many when starting a small business. This specific status is an amazing way to start your business and to hit the ground running, with simple setup and flexible taxation. The requirements with HMRC are so straightforward that you don't need a business account. The flip side to this is unlimited levels of personal liability, which can sound scary, and a rather expensive tax bill after hitting a certain level of income.

Although sole traders are the most popular form of business in the UK, with nearly 75% of all businesses being sole traders, there comes a time when your business will grow and moving on to become a limited company will become an obvious choice. Having a UK business account as a limited company becomes mandatory, and with it will come new administrative requirements and potential stress (including moving business funds from your personal current account to the business current account). 

Getting ahead of challenges before they become urgent is a great way to keep your business growing and successful, without incurring unnecessary costs or stress. SumUp’s ecosystem is designed for small businesses and sole traders who are looking to grow. Our tools scale with your needs in all but price: our business account remains free with no sign-up costs, monthly subscription, or transaction fees on any UK payments or transfers.

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2. You need to simplify your money management

Maths is far from everyone's favourite subject at school. When you’re a sole trader and you choose to keep your personal account as your business current account, things can get rather complicated when it comes to claiming allowable expenses, or just completing and filing your tax returns.

With a business account, you can make both of these processes simple, and reduce the likelihood of having to get an accountant to help at the end of the financial year. 

Filing your taxes with a small business account is straightforward, as you have a clear statement of all expenses and income directly related to your business, without needing to identify specific payments or filter out personal spend.

In a similar fashion, when claiming allowable expenses with HMRC, you don't need to spend hours digging through monthly personal bank statements to find the information that you need. 

At SumUp, we don't believe that you should pay for the privilege of convenience, which is why our SumUp business account is free. When it comes to claiming your expenses, you can simply connect to your account via the SumUp app or on web and download your statements, or search directly for specific payments and expenses with our simple search functionality.

3. You want to give your business a professional image

In our article about 5 steps to starting a small business, we covered the importance of choosing the right name for your business, even as a sole trader. Of course, the right name can be your own name, and there's nothing wrong with that, but maybe you’re trying to build a brand, and want to disassociate your personal name from the business. In this case, using your personal current account is not an option, as you will need to invoice in your personal name, even if you chose to use a trading name for your business.

In fact, as a sole trader you're required to include your personal name on your customer invoices without fail, even if you’re using a business account. The benefit of having a business current account as a sole trader is that you can use your business name (or trading name) instead of your personal name when providing payment details. This is a huge step towards looking more professional, and you can even swing having your personal name on the invoice as a choice rather than an obligation, providing that personal touch to your customer service.

It’s important to remember that looking professional can improve the trustworthiness of your small business. But don't forget that in the UK, personal relationships are a huge part of success, especially as a sole trader or small business, so adapt your brand and marketing accordingly.

SumUp’s ecosystem includes free tools that allow you to take your customer relationship building one step further. Not only can you build and manage a database of customers in your SumUp app, but you can send them personalised gift cards as a thank you for supporting you and your small business’s growth.

4. Your bank can close your current account if used for business purposes

At number 4 we have a fun one straight out of the high-street bank playbook. Although it's legal as far as HMRC is concerned for you to use your personal current account for business banking, your bank has other ideas

Some banks simply prohibit the use of your personal current account for your sole trader activities in the small print that you may not have read when signing up for your account (we don’t blame you, it's usually far too long and complicated to decipher). Other banks allow you to use your current account for business banking until they decide otherwise. If they start to see large amounts of money transit through your current account as you receive payments, and then pay suppliers and cover business expenses, they may issue you with a warning to cease using the account for business banking. After the warning, they'll shut you out of your account, including for personal use, which can cause all sorts of problems for you and your small business.

By setting up a business current account from day one, you’re making sure that your small business is ready for a bright future, all the while reaping the benefits of separating your personal finances from your activity. The best part is, you can find free UK business accounts if you look outside of the high-street banks

SumUp offers a UK business account with free transfers UK-wide. You only pay if you withdraw cash more than three times per month, or decide to withdraw cash abroad. That’s it, the rest is free, with no minimum balance requirements or terms and conditions written in very small font.

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5. You want financial protection for your business

Using a UK business account is not only a great way to simplify your admin tasks and improve your cash flow management. One of the big advantages of business bank accounts and business current accounts is the financial protection they provide for your business funds.

UK business accounts have the same protection as UK current accounts for private people under the Financial Services Compensation Scheme (FSCS). The parameters are the same: the FSCS pays out up to £85,000 per person, or per business, and per banking group. Confused yet? Banking and business banking with high-street banks is never simple, even if you just have a UK current account and a small business account.

Do I need a business account as a sole trader for better financial protection?

As a sole trader, your financial protection options are limited due to your personal finances and business funds being intertwined. When it comes to the FSCS, opening a business account is the best solution to double your protection limit. This is one of the big advantages of a business bank account, but there are extra steps to take as a sole trader…

When starting a small business as a sole trader, your business is not separate from you as a person. This is also applied when opening a business current account meaning that your protection under the FSCS is limited to £85,000 per financial institution. Make sure to open that UK business account outside of your personal account banking group.

What does £85,000 per banking group mean?

If you have multiple accounts with the same banking group or subsidiaries of this banking group, then you're only entitled to the maximum compensation of £85,000 across all accounts. By opening multiple accounts across different banking groups or financial institutions, you spread the risk and multiply protection for business currents accounts and UK current accounts under the FSCS.

Electronic money institutions offer a secure alternative to banking groups

Protecting your hard-earned business income as a sole trader is a priority. You want your funds to be available and secure, with no surprises. Electronic money institutions such as SumUp have set out to break down the barriers, costly fees and delays that come with traditional business banking.

Choosing a SumUp Business Account means access to a UK business account within minutes. And by access, we mean full access. You’ll have a UK account number and sort code provided upon account creation, giving you access to unlimited fee-free bank transfers and Direct Debits across the UK. You'll get a free, contactless Mastercard through the post and in the meantime you can set up Google Pay or Apple Pay and start paying for your business expenses straight away.

This UK business account is designed for sole traders and small businesses, which is why we decided to make it free. SumUp is building an ecosystem of tools and services such as the best free business account in the UK, to support your business growth and allow you to benefit from the tools you want and need, without having to weigh up the eventual cost.

As an industry leader for payment terminals, we understand that security and cost are some key concerns for small business owners and sole traders, which is why we make sure to safeguard your funds in segregated accounts, so that you can access all of your money, all of the time.

As well as securing your funds, we also protect your data. We adhere to the GDPR, and are certified under the Payment Card Industry Data Security Standard (PCI-DSS). This means we take extra care with the processing of card holders’ data as well as ensuring that our hardware and software provide optimal security, so that you and your customers are always protected.

You can find out more on our website, including how to sign up for our business account for small businesses and sole traders in under 10 minutes.

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SumUp Team