UPDATE: It seems Nationwide have now tightened up on this, and said that ‘business use' would be reviewed on an individual basis. In the mean time, if you need a basic business account, we recommend you take at look at our overview of Cashplus, or CardOneBanking accounts.
In November 2014 the Government reached a deal with UK banks to ensure the provision of fee free personal banking in the form of basic bank accounts.
Unfortunately when it comes to business there's no such thing as a basic bank account. Even the ‘no-frills' Natwest Foundation account requires that the owner/directors undergo a credit check.
That's a problem, since large numbers of entrepreneurs, freelancers, and would-be business owners are struggling to set up a dedicated business bank account for their business, whether due to previous bad credit or other reasons.
If you fall into this category then first see our guide on ‘How to open a business bank account with a poor credit history.‘
Self employed, sole traders, freelancers, contractors, small businesses
The difficulty in opening a business bank account leads many to continue to use their personal account. Let's clear one thing up first and for all. HMRC requires business owners to separate business and personal transactions, but there is no requirement for separate bank accounts.
In fact HRMC doesn't require you to have a bank account at all, though unless you're a market trader, or other ‘all cash' business, you'll find it difficult to operate without one.
You see many posts across internet forums by doom-sayers and scaremongers. Saying things like “using a personal account for business purposes kills kittens.” And that's terrible, kittens are cute.
It all stems from the bank's terms and conditions, which are likely to include a clause stating that ‘the account is for personal use, and should not be used for business.‘
By breaching these terms and conditions you are at risk of having your account closed, and where would that leave your fledgling business? Not that you couldn't open another basic account somewhere else mind.
Perhaps it's all that time spent studying contract law but I'm obsessed with semantics, and the phrases ‘used for business' or ‘business use' are certainly open to interpretation.
For clarification, I contacted a number of banks, and the results were (not that) surprising.
Now it's a given that if you have a limited company, you're not going to get away with using a personal bank account (see our guide on opening a business bank account). But what of all the sole traders out there? In my email to the banks I included a few scenarios:
A dance teacher working a number of schools in a local region being paid in either cash, cheque, or BACs, and all earnings being paid into a personal bank account.
A freelancer carrying out work for a single or multiple clients and being paid electronically, and paying for bills etc..
Here's what the banks said:
I can confirm that you can use the current account as a self employed individual to receive your wages from your clients/customers. Hence all the examples you've sited are not in breach of the terms and conditions of the current account, however it's your responsibility to declare your earnings to HMRC.
Any business transactions on an account are considered business use. For example; a dance teacher receiving money for services provided, a musician insuring his instruments or maybe paying a supplier. I hope this helps. Many thanks.
If you're self employed, this would be considered business use.
HSBC wouldn't comment directly. They said that they would need to discuss the specific merits of the business before being drawn on whether a business bank account would be required.
I actually know of number of people who've been using a Barclays personal account for their business for over 5 years. This was where the dance teacher scenario came from. Barclays however, were quite insistent to me that you'd need to open a business bank account under such circumstances.
We have a winner
So while that's not an exhaustive list, the answer is clear, that some banks don't consider self employed earning as ‘business use.' Nationwide seems the winner here, whilst the likes of TSB, Lloyds, and Barclays would all require a business bank account even for a babysitter.
Specifically it would make sense to look at the Nationwide Cash Card account, this is a basic account with no credit check, though those who's credit history is in order may prefer the benefits of the Flex Account.
A word of warning
It's important to note that the scenarios I approached the banks with were quite specific to freelance time-based workers such as graphic designers, gardeners, web developers, teachers etc.. What they all have in common is that they are like to have less than 20 or so ‘business transactions' per month since the transactions themselves are high value.
This is in stark contrast to the owner of a corner shop, or an eBay/Amazon seller. These types of activities are likely to involve many if not hundreds of small transactions and would likely require a full business account. See our guide on business bank accounts for more information.
The drawbacks of using a personal account
While using a personal account basic business transactions might be quick and easy, it does have a number of drawbacks.
- Lack of professionalism
- account not in business name
- unable to cash cheques made out to the business
- lack of separation – personal funds mixed with business funds
Basic business bank accounts with no credit checks
Using a personal bank account whilst doable isn't going to be ideal for most people. You are limited in the type of transactions you can carry out, and of course it's not in the business name. Add to that the time and inconvenience of identifying and separating your personal income/expenditure to that of your business, and you can see why even sole traders might seek out an alternative.
If you need a guaranteed business account as soon as possible then card-based alternatives in the form of Cashplus and CardOneBanking could be worth a look. The former has recently applied for a banking licence, so opening an account with Cashplus now, could be provide a back door method of gaining a fully fledged business bank account, without jumping though the hoops of the traditional banks.
These business accounts don't require a credit check, making them perfect for those with either bad, poor or no credit history. What's more, you could have an account up and running in as little as 24 hours. Bear in mind that both services have annual or monthly cover charges, and some basic transactions will cost. The good news is that all of these can be offset against profits thus reducing your tax liability. See our comparison of the two for more information or alternatively compare the top business current accounts.