Sole Trader Finances: Bank Accounts, Expenses, and Paying Yourself

Can a sole trader use a personal bank account?

Pros and cons of using a personal account

Technically, yes — HMRC doesn’t legally require a separate business account. Some sole traders start with a personal account to keep things simple.

But there are downsides:

• Harder to track income and expenses.

• Risk of mixing personal and business transactions.

• Can complicate tax returns and bank reconciliations.

I once helped a sole trader who ran a tutoring business through a personal account. She spent hours sorting through bank statements every year. Switching to a dedicated account cut her admin time in half.

Why a business account is recommended

A separate business account keeps things clean. It:

• Simplifies record keeping for Self Assessment.

• Shows a clear financial picture if you apply for a loan or grant.

• Helps separate personal spending from business revenue.

HMRC record-keeping requirements

HMRC wants to see a clear trail of all income and allowable expenses. A business account makes it much easier to comply.

Do sole traders need a business bank account?

Legal requirements

There is no legal requirement for sole traders to have a business bank account. It’s different for limited companies, which must have a separate account.

Benefits of a separate account

• Easier bookkeeping.

• Professionalism when clients pay you.

• Reduces errors when calculating profits and tax.

Choosing the right bank account

Look for:

• Low or no monthly fees.

• Easy online access.

• Integration with accounting software (Xero, QuickBooks, FreeAgent).

What expenses can a sole trader claim against tax?

Common allowable expenses

• Office supplies (stationery, software subscriptions)

• Travel costs (train fares, mileage for work trips)

• Marketing and advertising

• Professional fees and subscriptions

A client of mine, a freelance designer, once claimed the cost of a £1,200 laptop — entirely allowable, because it’s used for work.

Expenses you can’t claim

• Personal meals and travel unrelated to business

• Clothing (unless it’s a uniform or safety gear)

• Fines or penalties

How to record expenses correctly

Keep receipts, invoices, and bank statements. Use accounting software to log expenses as they occur. Even simple spreadsheets work if you’re organised.

Can a sole trader claim working from home expenses?

Simplified expenses method

HMRC allows a flat rate based on hours worked from home:

• 25–50 hours per month: £10/month

• 51–100 hours per month: £18/month

• 101+ hours per month: £26/month

This is easy, no receipts required.

Actual cost method

If you prefer, you can calculate actual costs:

• Proportion of your bills (electricity, internet, rent) based on the area of your home used for work.

• Must be supported with receipts and clear calculations.

What HMRC allows for home working

Only costs “wholly and exclusively” for business are allowable. Personal use must be excluded.

How do sole traders pay themselves?

Taking drawings vs salary

Sole traders don’t take a formal salary like company directors. You simply draw money from profits for personal use.

Tax implications of drawings

Drawings don’t affect your taxable profits — you pay Income Tax and NICs on total profits, not what you withdraw.

Good practices for paying yourself

• Set aside a regular percentage of profits for personal use.

• Keep a clear separation of business funds and personal funds.

• Avoid spending all profits before tax — aim to reserve 25–30% for HMRC.

Final thoughts

Managing finances as a sole trader doesn’t have to be a headache. Start with a dedicated account, keep accurate records, claim all allowable expenses, and pay yourself smartly.

I often tell clients: “Treat your business like a separate entity, even if legally it’s not.” Doing so makes tax time simple and avoids unnecessary stress.

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