Do sole traders need a separate business bank account?

When every payment in an account is for the business, that account becomes most of your record keeping. You can see what came in, what went out and what profit you made without picking through supermarket shopping and family transfers.

It also makes expenses easier to back up. If HMRC asks about a cost, a bank statement plus a receipt is much stronger than a card payment buried among personal spending.

The habits that undo the benefit are easy to slip into. Paying for business costs on a personal card, paying personal bills from the business account and keeping cash takings out of the bank all leave gaps that you then have to reconstruct at year end. If you are paid in cash, paying it into the business account keeps the bank statement complete.

When you choose an account, look at the monthly fee, the charges for payments in and out, and whether it links to bookkeeping software. Some banks offer business accounts free for an introductory period, so check what you will pay once that ends.

A separate account does not change your legal position as a sole trader. GOV.UK says sole traders have [unlimited liability](https://www.gov.uk/set-up-sole-trader: you are personally responsible for the business's debts, whichever account the money sits in. Only a limited company is a separate legal body, and in that case the company's money is not yours until you take it out as salary, dividends or a repaid loan.

You need records of all your business income and expenses so you can work out your profit for your Self Assessment return, plus records of any personal income.

• Accounting method: cash basis is the default from 2024/25. You record money when it is received or a bill is paid. You have to opt out to use traditional accounting, which records income and costs by invoice date.
• How long to keep them: at least 5 years after the 31 January deadline for that tax year. Records for 2026/27, filed by 31 January 2028, should be kept until at least the end of January 2033.
• If records are lost: you can file with estimated or provisional figures and tell HMRC which you have used.

From April 2026, sole traders above the Making Tax Digital income threshold must also keep records in compatible software and send quarterly updates. A clean business account makes that much easier.

You simply move money from the business account to your personal account. These are called drawings.

Drawings are not a business expense. GOV.UK says allowable expenses do not include money taken for personal use. You pay Income Tax and National Insurance on the business's profit, whatever you take out. Taking less does not lower the tax, and taking more does not raise it.

Many people find it easier to transfer a set amount on the same day each month, like a wage, and leave the rest in the business. Our page on managing irregular income covers how to pick that figure.

You can only claim the business share. GOV.UK's own example is a £200 phone bill with £70 of business calls: you claim £70. For household bills when you work from home, you need a reasonable way to divide them, such as the number of rooms used for work or the hours you spend working there.

Simplified expenses are flat rates that avoid those sums. Sole traders can use them, limited companies cannot.

• Working from home (flat rates): £10 a month for 25 to 50 hours of business use, £18 for 51 to 100 hours, and £26 for 101 hours or more. Phone and internet are claimed separately as the business share of the bill.
• Vehicles (2026/27 rates): 55p a mile for the first 10,000 business miles in a car or van, then 25p. Motorcycles are 24p. Parking and train fares can be claimed on top. Once you use the flat rate for a vehicle, you must keep using it for that vehicle.

The flat rate is quicker to work out, though it is not always the larger deduction.

Your tax bill arrives months after you earn the money. Moving a share of each payment into a separate savings account means it is there in January.

For a basic rate sole trader outside Scotland, Income Tax at 20% plus Class 4 National Insurance at 6% comes to 26p in every pound of profit between £12,570 and £50,270 in 2026/27. Scotland has different Income Tax bands, so the figure there is different. The tax basics page sets out the bands and the dates payments are due.