Do You Need a Business Bank Account as a Freelancer?

Whether you’re a full-time freelancer or just doing it as a side gig, one of the questions you may have is: do you need a business bank account?

First of all, I want to say congratulations for stepping into the freelance world and recognising what you do as a legitimate business. Surprisingly, a lot of people don’t consider what they do as a real business.

So, surely you need a business bank account? The answer to this question in the short form is yes and no.

No, you don’t legally have to open a business bank account as a freelancer/sole trader. As a sole trader, you are your business. If you had a limited company, things would be different because the business would be considered a separate legal entity to you.

While you may be breathing a sigh of relief, please keep reading.

You don’t have to set up a business bank account but I would absolutely recommend you set up at least a separate bank account, whether it’s a business or personal one.

Why you need a separate bank account

Keeping your business and personal finances separate makes it soooo much easier to manage everything – particularly where expenses are concerned.

Even if you started your business yesterday, you need to be thinking about tax and expenses now. It’s not too soon to make your exciting new venture just a little bit boring.

You will need to pay tax. I know, it’s upsetting but you do. Having a separate bank account for your business finances will make this a little less awful.

Expense management

The way Income Tax for sole traders works is:

What you make – Expenses (what you spend on the business) = Profit

You are taxed on your profit figures, not what you earn. This means you can reduce the amount of tax you owe by subtracting the amount you spend on your business from your earnings figure.

Say you charge £50 for providing a professional photograph, but it costs you £10 to print it. You didn’t make £50, you only made £40. So you should only be taxed on £40. (I have no idea how much professional photos cost.)

What’s this got to do with bank accounts?

Having a separate account for your business finances makes it so much easier to see what you’ve spent on your business clearly.

Imagine if all your finances were mingled together. You’d have to go through each transaction and work out whether that £5.99 you spent in Asda last year was for food (a personal expense) or for stationery supplies (a potential business expense).

With modern bookkeeping software, you can sometimes link your bank account up and pull over all your transactions automatically. If it’s just a business account, theoretically all the outgoings should be business expenses. You won’t have to try and remember what’s what.

This can save you precious time and also some of your sanity so you can go back to doing what you do best – actually running your business.

What bank account should you choose?

There are plenty of business bank accounts to choose from. You could go on the high street with one of the big names, but the downside to a familiar name is that the fees are usually a bit higher.

Typically you’ll be charged a small fee per transaction in and out of your business. You can just get a personal bank account to avoid these fees, but some banks don’t like you using a personal account for business. So check this!

Online banks have been booming in popularity in recent years. They’re easy to set up, you don’t need to visit a branch and you can do it all on your phone – sometimes more easily than you can with traditional banks because they’re built with the app in mind from the very start.

Some popular ones include Tide, Starling, Revolut and Coconut. All are highly rated, secure banks with great apps. As far as my research found, I’d have been safe with any one of them. But I chose Starling Bank, mostly because it’s covered by FSCS up to £85k. It takes about 10 minutes to set up and you manage your account all from within the smartphone app.

It’s as easy as that – and now all my finances are separate, saving a massive headache come tax return time.

I’d definitely recommend shopping around and looking for the best deal/features to suit your needs.

What bank account are you considering/do you use for your finances? Let us know in the comments below!

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