Free business account

I’ve opened a free business account. I’m a sole trader and have been for 10+ years, alongside other employment.

Before now, I have always used my personal bank account. My self-employed finances are very simple. Each month I receive approximately 10 invoices and I have next to no expenses (occasionally I will buy a pad of paper, or some printer ink). I’ve always taken 40% of the invoices received and put it in a pot to cover tax, NIC and student loan. The rest I transfer to my joint account where all of our household spending takes place.

I thought it would be simple enough to recreate this system in the business account but I forgot that the business pots are regular pots, not savings pots. So now I am faced with the choice of losing interest on 40% of my gross over the 18 months between earning it and paying my SATR the following January, or keeping the tax in a savings pot in my personal account. In which case my business account will simply receive my payments and then I will immediately (and manually) transfer the same amount into my personal account to then be treated exactly as before which makes the whole thing seem pointless.

What are your thoughts?

It’s your situation, you pretty much answered it for yourself.

Personally I’m not really bothered about the small amount of interest I earned on my tax and vat pots with my Barclays account, the benefits of monzo outweigh that.

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My preference would be to stick to my old system, but that falls foul of Monzo’s T&C’s, so all I’ve gained by opening a business account is the inconvenience of an extra 10 transactions a month.

I was in the exact same situation as you but it’s much easier now to have that segregation. Especially if you need to purchase things using your card for the business too.

I was also concerned about whether you should be declaring interest earned or not. Mine was only a tiny amount as the business didn’t earn loads so it was much easier to just write this off.

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well youve also gained a clean statement of your business dealings, not interspersed with spa treatments , and car servicing , food shopping etc etc

I use my joint account for all that. My personal account has always been a “clean” history of my limited business finances.

The definition of a sole trader is that your personal tax and business tax are inseparable. So I declare the interest, whether “personal” or “business”. To HMRC, it’s all the same.

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lets do some speculation here then , as usual we have no personal financial info before pontificating :slight_smile:

your sole trading business earns £20,000 a year gross
you earn £40000 a year gross from your employment
as a sole trader its classed as your income so you’re now on £60,000 a year and in the higher rate band for £13650 of it …so around £5460 tax on the extra (40% x £13650) , but youve been able to move it back to a pot that will earn you £300 over 18 months (on the whole 20K - £20000 x 1% x 18 months)

Why don’t you become a limited company, still with the free business account and pay 19% corporation tax and take a dividend , have equal shares of the company with your partner and pay your partner a dividend and stay in the lower band tax rate ?

Thank you, but I do have an accountant! :joy:

I earn ~£15000 gross per annum self employed and £0 employed.

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ah my pontification was lead by your

" I’ve opened a free business account. I’m a sole trader and have been for 10+ years, alongside other employment. "

I will get my coat , …your accountant will be the best to advise you :slight_smile: :slight_smile:

I’m a qualified teacher, but I gave up working in schools when my two year old was born :blush:

I’m happy with my finances and tax arrangement, it’s just that in order to fully comply with Monzo’s T&Cs I have to funnel them through a second bank account. Which isn’t a problem in itself, just seems a bit pointless.

You raise a good point about the actual amount of interest… I guess 40% of £15000 is £6000 but that will be earnt over the course of the year so annual interest on half of that, plus 6 months on the full amount…
So £60. Not worth stressing about, but probably worth me moving the money around once a month.