Can you use a personal bank account for a limited company?

Question : I set up a limited company two months ago of which I am the sole director and shareholder and have had major delays in setting up a limited company bank account. I have made a number of business payments from my personal bank account and I am due my first customer receipt in the next few days into the same account. Is it ok for this to continue indefinitely – do you have to have a business bank account for a limited company?

Limited Company Bank Accounts

Whilst strictly speaking it is not a legal requirement for a limited company to have a bank account in it’s own name, there are a number of very good reasons why opening a limited company bank account is something we strongly advise.

Directors loans

Any excess of income over expenses paid into the directors’ personal bank account on behalf of the limited company would be considered money owed to the company by that director. As such this would be subject to section 455 tax rules on loans to a director and would require 25% of the outstanding loan value to be paid over to HMRC if not repaid in full within 9 months of the company’s accounting year end. From 6th April 2016 the s455 rate increases from 25% to 32.5%. [update – the s455 tax rate has increased to 33.75% from 6th April 2022]

Furthermore, any balance over £10k would also attract interest of at least 3% (2.5% from 6th April 2017) to be paid by the director (and taxed as income on the company).

If the company continued to trade without its own bank account indefinitely it could accrue some significant amounts to be paid over to HMRC.

Payments to the company

Some customers of the company may be unwilling, or see it as very unprofessional, to pay a limited company invoice into a personal bank account. Additionally, there may be issues should you receive a payment via cheque in the name of the limited company as there would be no bank account of such name to allow it to be cashed.

Trading as an individual

Under an investigation there is a risk that HMRC may consider that there has been no trade as a limited company and actually, given the income and expenses of the business have gone through a personal account, you are operating as a sole-trader.

In this instance HMRC could look for the extra tax and national insurance that would have been paid were this the case with the potential for further penalties and interest attached to these amounts.

Summary

Overall our advice is to chase up the bank to ensure the account is opened as soon as possible as running a limited company without a business bank account is very risky.

A few early business expenses and receipts running through a personal bank account whilst a limited account is set up should not cause too much of an issue, however, in the medium to long term we strongly advice that a limited company needs a business bank account in it’s own name.