Do I need a business account for my side income?
The short answer is no.
Just like setting up a limited company, many people think they need to open a dedicated business account to qualify as a real business. Fortunately, this is not the case.
In this blog post, we'll explain when it's a good time to open a dedicated business account and when you can continue using your personal account.
Doesn't every business use a business account?
Over 58% of people that are self-employed use their personal account to run their business, and this number is even higher for those that generate a side income. There is no rule from HMRC that forces you to open a business bank account to manage your business. While most banks do state in their terms and conditions you should only use it for personal transactions, they’re very lenient as long as your business doesn’t grow too fast.
There are some benefits to splitting your personal life from your side income, but you don't necessarily need a business account for this. You can just use a separate personal current account. Business accounts often come at a cost.
But aren't business accounts free?
There are only a few business accounts that are truly free. For most, you either pay a monthly fee or pay for specific features like bank transfers or ATM withdrawals. Costs for these business accounts range from £2 to 50 a month.
Some banks will also do a credit check when you apply for a business account. This can impact your credit score and your ability to take out a loan or a mortgage, especially if you are rejected for an account.
So why do people open a business account?
Having a business account helps you separate your personal transactions (like that Netflix subscription) from your business transactions. This makes it easier to keep track of how your side income is doing and ensure nothing is missed.
This could also be managed by having a dedicated personal bank account or, even better, use Earnr. We connect to your personal bank account rather than forcing you to open a new one.
Another reason why people open a business account is to look more professional. Having a dedicated business account helps show your customers that you're a legitimate business. But, if you get your customers through websites like Shopify, Fiverr or Etsy, then they never even see the name on your bank account.
Using your personal bank account is a great way to get started
Opening and managing a business bank account takes a lot of time. If you're just started out we recommend using a personal account and earnr to stay on track. If your side income grows and it gets complicated, you can always open a business account later on. For now, you can save yourself the cost and focus on your customers!