Step #10 of my Top 20 Tips for Small Business Start Ups is one of the easiest wins on the list. It's really simple (and free) to set up a separate business bank account, and it's sensible to do it from day one. It makes tracking your business spending far easier and makes reporting much more straightforward later on.
If you've ever tried to work out which of 400 transactions on your personal statement were business expenses, you'll know exactly what I mean. Make sure you never have to do that.
Why it matters
• Clarity. You can see at a glance how the business is really doing, without personal shopping, direct debits and the odd takeaway muddying the water.
• Easier tax time. You need to keep records of your business income and expenses. GOV.UK has a clear guide to the records sole traders must keep. A separate account does half the work for you.
• Credibility. Customers, suppliers and lenders take you more seriously when payments go through a business account in your business name.
• Peace of mind. If your accountant, HMRC or a lender ever asks questions, you can answer them quickly.
And if you set up a limited company, it's a legally separate entity from the people who own it, so keeping company money separate isn't just good practice, it's essential. GOV.UK's guide to setting up a business explains the differences, and we'll look at them in Step #11.
Do sole traders have to have a business account?
As a sole trader, you're not generally forced to open one, but my advice is still to do so. It keeps everything in one place and avoids the muddle. Check your personal account's terms too, as some banks don't allow you to use a personal account for business purposes.
How to choose a business bank account
Shop around, because the offers vary a lot. I’m not going to attempt to be Martin Lewis here as deals change all the time, but a good few things to check are:
1. What does it cost? Many accounts offer a free period when you start up. Check what the monthly fee becomes after a full year in business.
2. What are the transaction charges? Fees for paying in, taking card payments, transferring money or depositing cash can add up.
3. Does it work with your accounting software? A feed that links to your software saves hours of data entry.
4. How will you deposit money? Depending on how you take payment for your business, you may need to know that you can pay in cash and cheques easily.
5. How good is the customer service? Rare these days, but it’s nice to know that you are able to reach a human when something goes wrong.
6. Is your money protected? Check how your money is protected, and make sure the provider is properly authorised.
The money habits that make life easier
Opening the account is the easy bit. These routines are what keep you out of trouble:
• Pay yourself deliberately. Decide how you'll take money out (a regular amount works well) rather than dipping in whenever you fancy. How you pay yourself depends on your business structure.
• Set up a tax pot. Whenever you're paid, move a percentage into a separate savings account for tax, so you're never shocked by a tax bill. Your accountant can advise on the right figure for you but somewhere between 20 and 40% is wise.
• Capture receipts as you go. Photograph them on your phone or upload them to your accounting software straight away. Saves faffing later.
• Don't mix payments. If you accidentally pay for something business-related personally (or the other way round), note it down and sort it out properly.
• Reconcile monthly. Tick off your transactions against your records once a month. It takes minutes and catches mistakes early.
• Keep your records. GOV.UK explains how long you need to keep them.
Choose your accounting software
A spreadsheet is fine to begin with, but accounting software will save time and reduce errors. Many can link directly to your business bank account, send invoices and track what you're owed. There's also a growing tax reason to choose well. Under Making Tax Digital for Income Tax, sole traders and landlords with qualifying income above £50,000 have needed to keep digital records and send quarterly updates through compatible software since 6 April 2026, and the threshold is due to fall to £30,000 in April 2027 and £20,000 in April 2028. GOV.UK has step-by-step guidance on what applies to you, and it's worth choosing software that supports it, even if you're a long way from those figures.
Think about accounting methods
From the 2024 to 2025 tax year, cash basis is the default method of accounting for most sole traders, which means you record income when you receive money and expenses when you pay bills. It's simpler, and means you don't pay Income Tax on money you haven't received yet. GOV.UK explains the difference between this and traditional accounting in its guide to self-employed records. Your accountant can help you decide which suits you.
Watch your personal finances too
Separating the business from the personal doesn't mean ignoring the personal. If you're still working your job while you build the business (Step #3), use MoneyHelper's free Budget Planner so you know what you need to live on. It also helps with the personal survival budget we talked about earlier in the series.
Takeaways (not the edible kind) from this blog
Remember, not everything needs to be done today!
• ☐ Compare three business bank accounts, including fees and free periods
• ☐ Decide how you'll pay yourself
• ☐ Open a separate savings account for tax
• ☐ Choose a way to track receipts and invoices
• ☐ Book a free chat with an accountant
Need a hand getting organised?
I'm a marketer, not an accountant, so for the numbers do speak to another professional, not me. But if you'd like help with the bigger picture and to chat about how I’ve done this, book a call with me.
Next up in the series: Step 11, Decide Upon a Business Structure. Sole trader or limited company? Let's find out.
