Freelancers’ Questions: Do sole traders need a business account?
Freelancer’s Question: I am very new to working for myself. Do I need to set up a business bank account if I am trading as a sole trader? I am a salaried part-time employee, doing some freelance work in my spare time. Also would you advise that, for tax or other purposes, I should set up a company instead?
Expert’s Answer: There is no legal requirement for you to set up a business bank account if trading as a sole trader. However many people choose to, often because it makes their bookkeeping and submission of personal tax return easier. Your personal bank statements will likely contain many transactions which will take you time to sort through so having all (or as many as possible) transactions on one business account statement should be clearer.
You should take the time to discuss the possibility of setting up a limited company with an accountant, or other business advisor. There certainly are tax savings that can be made for many people by operating in this way but it is dependent on many factors, which would include your expected turnover, your ability to comply with the legal requirements, whether or not your clients expect to contract only with ‘Ltd’ companies, and your long term goals. The tax saving, which can be made by drawing funds from the limited company in a combination of salary and dividend payments, is in addition to the limited liability that you, as a director of the company, would potentially benefit from.
The expert was Alasdair McGill, managing director of Freelance World, a tax and accountancy specialist.
3rd August 2010