Contractors: Your business bank account

 contractor-bank

As your limited company is a distinctive legal entity of its own, you cannot use your personal account for business purposes. You must set up a separate company bank account, even if you are the only director and shareholder.

 

Avoid using your business account for personal expenses

Almost all contractors with limited companies operate in the same way:

They receive weekly or monthly transactions from their end client, and make payments out in the form of salary, dividends and expenses, as well as direct debit payments to their accountants, insurers, and any other service providers.

 contractor-personal-expenses

Keep your banking costs low

Most contractors do not need high-transaction business bank accounts. The aim should be to pay as little as possible for your business banking, avoid additional charges, and shop around for the best deal available. Most of the high street banks offer ‘free business banking’ to new companies for periods of up to 24 months. Note that it is important to find out  what costs will be applied once your initial free banking period expires, as most day-to-day business accounts charge per transaction, or apply a monthly standing charge.

 

Consider a separate deposit account

It is challenging to find a business current account that offers a good interest rate, especially in the current climate. Most current accounts pay zero interest, or minimal interest in exchange for a monthly account fee. It may be worth your while opening a separate business deposit account to put aside any future tax liabilities (such as Corporation Tax and Value Added Tax).

You will receive a higher amount of interest than for a current account; although you may be subject to a withdrawal notice period should you wish to withdraw the funds.

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