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Not financial advice: this guide is general information to help you understand the basics. It is not financial, tax or legal advice. Rules and figures can change, so check the linked official pages, and speak to an accountant or adviser about your situation.
Mixing your personal and business money feels harmless when you are starting out. It is one account, one card, one app. But it makes it much harder to see whether your business is actually making money, it turns tax time into a hunt through bank statements, and for limited companies it is not allowed. This guide explains the rules and the simple steps to keep things apart.
If you run a limited company: you must keep them separate
A limited company is a separate legal entity from you. GOV.UK says there must be a clear division between the company’s finances and those of its owners and directors, and that the company’s banking must be separate from your personal banking. It says the simplest way to do this is to open a business bank account. The British Business Bank’s guidance from an accountant says the same: if you have chosen a limited company structure, you must have a separate business bank account.
This also matters because the money in the company account is the company’s, not yours. There are rules on how you take money out, for example as salary or dividends, and you may need to pay tax on it. GOV.UK’s limited company guidance covers these rules, and an accountant can help you choose the right approach.
If you are a sole trader: not required, but strongly recommended
As a sole trader, you and your business are legally the same, so there is no legal requirement for a separate account. The accountant interviewed by the British Business Bank says you technically do not need one but always recommends that you do, ideally a business account, because it makes managing your numbers and preparing your accounts far easier when business expenses are not mixed up with personal ones. business.gov.uk also suggests checking with your bank which type of account you can use for business transactions, as some banks do not allow business use of personal accounts.
Why separating your money helps
- You can see the truth. When only business money goes through the business account, its balance tells you how the business is really doing.
- Tax is easier and more accurate. You have to work out your profit for your tax return. Sorting business costs from personal shopping on a mixed account takes time and leads to mistakes, in both directions.
- Records are clearer. GOV.UK lists the records limited companies must keep, including all money received and spent. A dedicated account produces much of this for you.
- You look more professional. Customers paying a business name feels more trustworthy than paying a personal account.
- It is easier to get finance later. Lenders will want to see your business’s performance. The British Business Bank’s finance guidance stresses up-to-date records and forecasts.
Simple steps to set it up
- Open a business account. Compare fees, how you deposit cash if you take it, and whether the account works with your accounting software. Many banks and app-based providers offer business accounts.
- Point all business income at it. Update your invoices, online shop and payment links. If you take card payments, set your card reader payouts to go into the business account. Our Find my card reader quiz can help you choose a reader that fits how you sell.
- Pay business costs from it. Use the business card for supplies, software and fees. If you accidentally use a personal card, record it so it can be reclaimed properly.
- Pay yourself on purpose. Instead of dipping into the business account when you need something, move a set amount to yourself on a regular day. It makes your personal budgeting easier too.
- Set money aside for tax. The British Business Bank’s accountant advice is to put tax money aside as you are paid. Some founders open a second savings pot for this so it is not accidentally spent.
- Use bookkeeping software. The same British Business Bank guidance suggests digital accounting platforms that link to your bank feed, making it easier to see who owes you money and how your cash flow looks.
Common slip-ups to avoid
- Paying a personal bill from the business account and forgetting to note it.
- Leaving card reader payouts going to an old personal account.
- Treating the business balance as spending money. Some of it is owed in tax, and some is needed for next month’s costs.
- For limited companies, taking money out without understanding how it will be taxed.
What this means for your numbers
Once your money is separate, your break-even sums become real rather than guesses. Read our pricing and break-even guide, and use our card reader fee calculator to see how much card fees take from your monthly takings. Our payout speed and cash flow guide explains why the timing of payouts matters as much as the amount.
If you are unsure whether to set up as a sole trader or a limited company, that choice affects these rules. GOV.UK and an accountant can help you decide.
Sources
- GOV.UK: Company and accounting records
- business.gov.uk: Getting a business bank account
- British Business Bank: Top business tips from an accountant
- British Business Bank: Small business finance management
Free official help and our tools
- GOV.UK: Business and self-employed
- British Business Bank: Business guidance
- Start Up Loans: Support and guidance
- Our card reader fee calculator
- Our Find my card reader quiz
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Last checked 29 October 2026. Spotted something out of date? Let us know.