Do freelancers even need a business bank account? Legally, no. Practically, absolutely! Managing your finances after going freelance is pivotal to ensure you have enough money set aside to cover your taxes, National Insurance contributions, and other expenses. Let’s look into who needs a freelance business bank account, why they’re important and other finance tips to get your business rolling.
What is a business bank account?
While freelancers are not legally required to open a separate business account, many do. A business account is much like your personal account, but with a few added benefits. Business accounts are used to easily track business expenses, manage cash flow and simplify the process of filing annual tax returns.
As soon as your income reaches a certain threshold and you have a stream of cash regularly going in and out of your personal bank account, your bank might insist that you open a separate bank account for business (and they’ll charge you for it).
Why is it important to have a business bank account when freelancing?
So why do freelancers bother with opening a separate business account for their business? Several reasons.
First of all, it makes things easier when declaring expenses and dealing with HMRC. When you complete your self-assessment at the end of the year, you’ll need to tell the authorities how much money your business has made as well as submit your allowable expenses. Calculating the costs of business travel, office costs, software subscriptions, and similar expenses will be significantly easier and more accurate if they’re separate from your personal spending.
Besides that, there’s also the small print that you may not be aware of when opening a personal bank account. Most banks require us to confirm that the account will be used for personal matters only. If you have lots of business transactions or handle a lot of cash, your bank might ask you to open a separate business account.
If you decide to open a business account, it’s worth shopping around for the best deal. Some banks offer 12-month free business banking, then start charging you later. At N26, we have a free business account designed specifically for freelancers and the self-employed, with an array of additional perks, such as free ATM withdrawals and free payments in any currency. It’s a matter of finding what matters and works for you.
What you need to open a business bank account for freelancers
The information you need to provide when opening a freelance business account will depend on the legal structure of your business and your relationship with the bank.
If you register as a sole trader, you’ll need to provide the following:
- Full name
- Unique Taxpayer Reference (UTR) number (showing that you’ve registered as self-employed)
- Registered business address
- Business contact details
- Projected annual turnover
If you’re a new customer at the bank, you’ll also need to prove your identity and provide a proof of address.
Registering as a limited company, you’ll need to provide the following:
- Everything mentioned above
- Names of all directors
- Company registration documents
- Proof of the registered business address
There may be some additional requirements, dependent on which provider you open your account with.
Best practices for managing your finances
As a freelancer, you’ll quickly notice that planning ahead and taking the time to manage your money is pivotal. Follow these good old best practices for managing finances to keep things simple:
Maintain a business bank account for tax payments: life is easier that way and it’s a simple task to tick off your list.
Budget wisely: keep in mind that freelance work tends to come in waves. You’ll have some crazy-busy times and some freelance dry spells, so budgeting for those quieter times is critical.
Keep your credit card spending inline: frankly, credit cards are not recommended for freelancers. If you really must use one, make sure to keep the spending in check to be able to pay it off quickly, even if your work-levels drop.
Maintain a ‘rainy-day fund’: this is another unwritten rule that all freelancers swear by. Planning for the unexpected and setting aside a rainy-day fund is plain smart. Whether your laptop goes bust, you get a non-paying client or want to take some unplanned time off, you’ll have this emergency fund to rely on.
Save for retirement & other long-term goals: if you choose freelancing as a way of life and a long-term career path, you must play the long game and start saving for your retirement, mortgage deposit or any other long-term goal you may have.
Your money at N26
Going freelance can seem pretty complicated. Thankfully, N26’s free bank account for freelancers and the self-employed makes things easy, letting you earn 0.1% cashback on all purchases you make, and enjoy free card payments worldwide. Great, right? On top of all that, it only takes a few minutes to set up.