Managing money is one of the areas new business owners often worry about, particularly at the beginning. Many people are unsure whether they need a business bank account straight away, how to keep things organised, or what HM Revenue & Customs (HMRC) expects to see.
This guide is written for beginners and explains, in simple terms, how business bank accounts work in the UK, when you need one, and how to manage your money sensibly from day one. If you run a business in Farnborough or anywhere else in the UK, the same principles apply.
Do You Need a Business Bank Account?
Whether you legally need a business bank account depends on how your business is set up.
- Limited companies: Because a limited company is a separate legal entity from its owners, you are legally required to keep its finances completely separate from your personal money. While the law doesn’t explicitly state you must open a ‘business bank account’, it is the standard and most practical way to meet this legal requirement.
- Sole traders: You are not legally required to have a business bank account. However, many sole traders choose to open one anyway to make life easier.
Even when it is not required, having a separate account is one of the simplest ways to stay organised.
Why Separating Business and Personal Money Helps
Keeping your business and personal finances separate from day one is a very helpful habit. It can help you:
- See clearly what your business is earning and spending
- Keep accurate records for your tax return
- Reduce confusion and stress when tax is due
- Avoid accidentally spending money that should be set aside for tax
Many new business owners find that separating their finances early prevents a lot of problems later on.
Opening and Choosing a Business Bank Account
Opening a business bank account is usually straightforward, but it’s worth taking a little time to choose the right one. Many modern accounts are app-based and can be opened online quickly.
When comparing accounts, it’s helpful to look at:
- Monthly fees: Some accounts have a monthly fee, while others are free or have an introductory free period.
- Transaction costs: Some accounts charge for things like paying in cash or making transfers.
- Online and mobile banking: Check that the app or website is easy to use.
- Overdraft facilities: While it’s best to avoid using an overdraft if you can, knowing it’s there can be helpful.
Managing Money Day to Day
You do not need complicated systems to manage your business finances at the beginning. Good habits are more important than complex software.
At a basic level, this means:
- Paying all your business income into your business account
- Paying all your business expenses from that same account
- Keeping receipts and records of all transactions
- Checking your balance regularly so you always know where you stand
Simple routines like these can make a huge difference over time.
Setting Money Aside for Tax
One of the most helpful habits you can build is setting money aside for tax from the very beginning. Because tax is not deducted automatically, it can be easy to forget that some of the money in your account isn’t really yours to spend.
Many business owners find it reassuring to open a separate savings account and regularly transfer a portion of their income into it. A common starting point is to set aside 20-30% of your income for tax. This does not need to be exact at first; the aim is to build the habit and avoid a future tax bill you can’t pay.
Understanding Cash Flow
Cash flow simply means having enough money available to pay your costs when they are due. Even a profitable business can run into trouble if money comes in later than expected.
For example:
You complete a job for a client and send an invoice in January. Your client doesn’t pay you until March, but your rent and other bills are due in February. This is a cash flow problem.
Keeping an eye on when you expect to be paid and when your bills are due helps you stay in control. This is especially important in the early stages when your income may be irregular.
How to Pay Yourself
This is another common question, and the answer depends on your business structure.
- Sole traders: As a sole trader, you can simply transfer money from your business account to your personal account. These transfers are called ‘drawings’.
- Limited companies: As a director of a limited company, you can pay yourself a salary, dividends, or a combination of both. The rules around this are more complex, and it is a good area to get advice on.
Common Money Management Mistakes
Many new business owners make similar mistakes. These are normal and usually easy to fix once you spot them.
Common mistakes include:
- Mixing business and personal spending in the same account
- Forgetting to set money aside for tax and spending it
- Not checking bank balances regularly and losing track of your position
- Relying on memory instead of keeping clear records
When Advice Can Help
You are not required to get professional advice to manage your business finances, and many people handle things themselves at the beginning. However, advice can be helpful if you feel unsure about how to organise your money, your income becomes less predictable, or you just want some reassurance that you are doing things correctly.
If you would like calm, practical support as your business develops, Penney’s Accountancy works with UK small businesses in Farnborough and the surrounding areas, helping owners manage their finances with confidence from day one.
Want to Learn More in Your Own Time?
For those who want to build their confidence and understand these topics in more detail, Penney’s Finance School offers an online, self-paced business and finance course. It covers everything from company setup to cash flow and tax, allowing you to learn at your own pace.
Important information
The information provided in this article is intended as general guidance for UK businesses only and reflects UK tax legislation and HMRC guidance as of February 2026.
Tax rules and business requirements can change, and individual circumstances vary. Before acting on any of the information above, we recommend speaking to a qualified accountant who can provide advice tailored to your specific situation.
If you would like calm, practical support as your business develops, Penney’s Accountancy works with UK small businesses in Farnborough and the surrounding areas, helping owners manage their finances with confidence from day one.