The Importance of Separating Business and Personal Money

Welcome to the next article in our Accounting & Tax 101 series — short, plain-English guides to help you understand the numbers that matter.

When you run your own business, it’s tempting to treat the company bank account like your own wallet. After all, it’s “your” business. But mixing business and personal spending is one of the easiest ways to create stress — and sometimes even extra tax bills. Here’s why keeping them separate is so important.

1. Clearer picture of your business

If personal bills are mixed in with business transactions, it’s almost impossible to see how your business is really doing. By separating them, you can quickly tell:

• How much profit are you making?

• Whether you have enough set aside for tax.

• What’s safe to take out?

2. Easier bookkeeping (and lower fees)

When everything is mixed, your accountant has to spend extra time sorting personal from business costs. That usually means higher fees for you.

With a clean business account, the records are clearer, and your accountant can focus on giving advice instead of untangling bank statements.

3. Staying on the right side of HMRC

HMRC doesn’t like blurred lines. If personal spending goes through the company, it could be treated as:

• Extra salary (taxed under PAYE), or

• A director’s loan (which may trigger Section 455 tax), or

• Non-allowable expenses (meaning higher Corporation Tax).

It’s also very easy to end up with an unexpected Director’s Loan Account if you dip into company funds without recording it properly. That can create tax charges you weren’t expecting.

Separating accounts avoids these headaches.

4. Professional image

Having a separate business account makes you look more organised to customers, suppliers, and even lenders. It shows your business is run properly, not as a hobby.

Our advice

• Always have a dedicated business bank account if you run a company.

• Use it only for business income and expenses.

• Pay yourself through salary, dividends, or pension contributions — not by dipping straight into the account.

• If you’re a sole trader, it’s still worth having a separate account for your business. It makes record-keeping clearer, avoids confusion with personal spending, and helps you see your true profits at a glance.

Here at Accounts Action, we help directors and sole traders set up simple systems to keep business and personal money separate, so you stay in control and avoid unnecessary tax traps.

This article is part of our Accounting & Tax 101 series — short guides to help you understand your accounts without the jargon.