While a limited company will need to obtain a business account, self-employed individuals and freelancers have the option of using their personal account. On the surface, you could assume that this is the best way, as you have all your expenses in the same place, but nothing could be further from the truth.
If you’re currently mixing your personal and business payments, then it may be worth considering the following options.
Set Up a Business Account
This may seem like a no-brainer, but if you’re currently managing your business expense from your personal account, then you may feel that there is no rush. However, when managing your money in this way, you run the risk of overspending in either department.
Obtaining a business account allows you to separate your business payments, which means that you will have a more accurate overview of each account.
In some instances, a business bank account may be refused, but the main objective here is to ensure that payments are kept separate. As such, you should speak to your bank to see what solutions are available, even if it’s only a basic savings account.
If you’re looking to expand the business in the future, then it’s likely you will need a business account in any event, especially if you’re looking to register the business as a limited company, so why not start now and get used to how a business account works.
Keep Physical Receipts Separated
Just like our bank accounts, it’s important to keep personal and business-related receipts separate, otherwise we could find that there is a lot of sorting out come the end of the tax year.
The system you use doesn’t have to be anything complex. In fact, a couple of shoeboxes is more than sufficient. Simply label each box accordingly, and you’ll find that locating a receipt in the future is less hassle than having to plough through a mixture of unsorted receipts.
Ensure You have a Budget for Business and Personal Expenses
Setting up a budget is the best way of establishing when we need to keep money aside. If we decide to mix business and personal expenses, we could be causing confusion rather than making things clearer. As such, you should look to create separate budgets for both your business and personal expenses to ensure that there is no crossover that causes problems in either arena.
Keeping Expenditure Separate
If we need to make a purchase for the business, but we only have our personal debit card, it may seem like a big issue. However, if we’re not able to keep on top of these payments, the can soon spiral out of control, and before we know it, we’re struggling to allocate payments in the right way, which means both our personal and business finances can be incorrect.
If you have a business account, then you need to ensure that you also have a card so you can make any business purchases directly from the business account. If you’re looking to use credit for your business, then it’s advisable to speak to your financial institution about a business credit card.
Ensure Everyone Understands the Process
Regardless of whether you’re a sole trader or part of a family-run business, it’s important that everyone involved knows the process when it comes to making a purchase within the business. What this system is will depend on you, but if those closest to you make a personal purchase with a business credit card, it could confusion when it comes to matching u the payments later.
Consider Registering a Business Mobile Phone
If we already have access to a mobile phone, then it may seem pointless to take out another contract for the business. While a personal mobile can be used in most instances, if you find that your business use is making your personal bills larger than they should be, then it may be a good idea to seek out a separate contract so that expenses can be tracked easily.
If obtaining a second contract is not viable, then it’s advisable to request a breakdown of your bill each month, as this will allow you to highlight business use.
If you don’t want to commit to a contract, then you could opt for a PAYG option and purchase it with a business debit or credit card. You can then just find the mobile with vouchers from the business account. It’s worth noting that PAYG option may not offer the same features as a business contract, so it can be worthwhile carrying out some research as to what suits your purpose best.
Ensure You Keep Fuel Receipts Used for Business
In the perfect world, every business owner would use a vehicle purchased by the company. Unfortunately, if we’re new to the world of business, then it’s likely we will have to use our own vehicle.
If you do own a vehicle registered under the business name, then you will need to ensure that you keep the receipts for any fuel you need to purchase. If you’re using your own vehicle, then you will need to keep a record of the mileage used. It can also be a good idea to keep any receipts just so your records are complete.
Consider Speaking to a Finance Professional
If you find allocating the payments a little overwhelming, or find you just don’t have the time, then why not speak to a financial professional. Of course, there will be a cost for this, but it can be advisable if you’re looking to ensure that all payments are allocated correctly, and you’re getting the right tax relief for your expenses.
Separating our business and personal payments if we’ve only used one account in the past can be time-consuming, but it’s a worthwhile investment of time if you’re looking to add more clarity to your budgeting moving forward.