5 Reasons to Keep Your Business and Personal Bank Accounts Seperate


If you are self employed and operate your business through your personal bank account, you may have experienced some confusion in remember what was a valid business expense or not.  Using your personal bank account for your business is frowned upon by HMRC and can make your year end accounting time consuming and more expensive.  Here are 5 reasons why you shouldn’t mix your personal and business bank accounts. 

1 Understand Your Business Cashflow

Cashflow and the reasons behind peaks and toughs is unique to every business.  If personal transactions intermingle with business transactions it will be harder to prepare a cashflow forecast, understand where the pinch points are and how much working capital your business needs on a month by month basis. A business bank account may seem healthy and it can be tempting to dip in, but there may be a corporation tax bill around the corner or VAT to pay so it may run short to pay these bills.

2 Pay the Right Amount of Tax

When there are personal and business transactions in the same bank account, you risk expenses being incorrectly allocated as drawings or dividends ultimately meaning you end up paying too much personal tax.  Conversely personal expenses could be allocated as business expenses meaning you incorrectly receive corporation tax relief – HMRC will take a dim view of this in the event of an investigation, since their guidance states you should keep separate business and personal bank accounts.

3 Accurate Financial Reporting

A mis allocation of personal expenses as business ones will result in incorrect results being presented and make it difficult to understand the true profitability and cash position of the business. Accurate business financials can be analysed, cost savings identified and budgets developed and tracked. If funding, loans or overdrafts are required applying for these will be made much trickier if there is a lack of clarity around the use of the business bank account and there may be resistance since lenders may worry a business loan will be used personally.

4 Track Your Personal Finances

By keeping your business expenses in one place you gain a better understanding of income, costs and profitability.  The same is true of your personal finances.  By understanding your own personal expenses and income, you can equally look at where you may be able to save money or see that your income is not sufficient to cover your expenses and you need to increase your salary.  If you want to apply for a mortgage, for example, your potential lender will want to see your salary and feel comfortable that you can cover the repayments.

5 Save Time and Money

If your accountant or bookkeeper has to spend time reviewing personal transactions as well as business, it will inevitably add time and therefore cost to your bookkeeping.  Keeping things tidy and separate means they only need to deal with relevant information and avoids them having to ask you lots of questions as well as providing you with the right business information you need.


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