What is a sole trader bank account and how is it different from a business account?

While freelancers are not obliged to have a sole trader bank account, there are very good reasons for separating personal and business finances. From easier bookkeeping to accessing business banking services – we unravel all pros, cons and alternatives to a sole trader business bank account.

Sole trader bank account: Definition

A sole trader bank account is designed for individuals operating as sole traders or freelancers. Unlike limited companies, which are legally separate from their owners, sole traders and their businesses are considered the same entity. This means they are not required by law to open a separate business account in many jurisdictions. However, some banks may require one if a personal account is used for frequent business transactions.

A dedicated sole trader bank account helps separate personal and business finances, which makes bookkeeping, tax filing, and financial management a lot easier. While some banks offer specific accounts for sole traders, others provide general business accounts. Understanding the differences between business bank account types can help you choose the one that best suits your needs.

Personal vs Sole trader vs Business bank Account

While a personal account is designed for managing everyday expenses and savings, a sole trader bank account solely manages income and expenses for a sole proprietorship. A business bank account is tailored for companies and usually offers more features, such as payroll capabilities.

What can you do with a sole trader bank account?

A sole trader business bank account is designed to help sole proprietors manage their business finances efficiently. You can easily separate your personal and business finances and ensure accurate financial records:

• Receive payments: Accept payments from clients or customers and keep the business income separate from personal funds.
• Track business income: Easily monitor the money coming into your business.
• Track business expenses: Keep a clear record of business-related expenses, so that you can deduct them during tax filing.
• Send and manage invoices: Pay suppliers and service providers, as well as issue and track invoices to clients.
• Record VAT: You can record and manage VAT payments and claims.
• Keep track of bills: Organise and pay bills related to your business, so that nothing gets missed or delayed.

Reasons to open a sole trader business bank account

There are very good reasons why you should open a business account as a sole trader, which go far beyond the separation of personal and business expenses.

Separating personal and business expenses

A dedicated sole trader business bank account helps keep income, expenses, and tax records distinct, which reduces the risk of errors. It simplifies accounting, ensures accurate tax filings and provides a professional approach to managing your business finances and tax obligations.

Easier bookkeeping

Easier bookkeeping is one of the key benefits of having a separate sole trader bank account. Your business transactions are in one dedicated place, which makes it much easier to categorise expenses and track cash flow. With all financial activity clearly separated, preparing reports and filing taxes becomes much more straightforward, which in turn saves time and reduces errors.

Financial transparency

A separate sole trader business bank account ensures all transactions are easily traceable and gives sole traders a transparent view of income, expenses, and profits. This clarity not only improves financial management but also lays the groundwork for making better financial decisions.

More credibility

Having a separate business account enhances your credibility. As you operate under your business name when making transactions, you gain more trust among your clients, suppliers, and business partners.

Access to business banking services

When you open a sole trader business bank account at your local bank, you gain access to a wider range of banking services. These services may include merchant accounts, business loans, credit lines, and specialised payment solutions.

Reasons not to open a sole trader business bank account

Despite the tremendous benefits of opening a sole trader bank account, you should be aware of the disadvantages. While this section describes the most common backdrops, the next section offers the solution.

Monthly fees

One reason not to open a sole trader bank account are the monthly fees. Most business accounts at traditional banks come with additional monthly charges, which can add up over time, especially if your business is just starting out. These fees can become a burden if your business doesn’t generate enough revenue to justify the cost of the account.

Increased expenses

While opening a sole trader bank account can improve your financial management, it doesn’t cut your transaction costs. Standard charges often include regular transaction fees, FX fees and costs for services such as SWIFT transfers for international business payments, which are notorious for their long duration and particularly high fees. These costs can quickly add up and make it difficult for small businesses or those just starting out to manage their cash flow efficiently.

More red tape

Opening a sole trader business bank account always involves bureaucracy, as banks require extensive documentation to verify the legitimacy of your business. This can include proof of identity, business registration and tax information.

For sole traders, this additional paperwork can be time-consuming and frustrating, particularly when starting a business on a tight schedule. Navigating these administrative requirements can divert valuable attention away from focusing on growing your business.

An all-in-one global banking account as viable alternative to a sole trader bank account

If you want to gain all the benefits of a sole trader bank account without its disadvantages, there is an easy-to-implement, cost-efficient solution.

By opening an all-in-one global banking account at a fintech provider, sole traders gain access to multi-currency accounts, fast and cheap international transactions, virtual and physical debit cards as well as the opportunity to pay bills in their own company name – at no monthly fees and much less bureaucracy compared to traditional banks.

An all-in-one global banking account is everything sole traders need to manage their finances.

Looking for the best alternative to a sole trader bank account?

amnis is built for sole traders and freelancers who need smart, global banking tools without the hassle. With flexible plans starting at $0 per month, you can send money abroad at local rates, access both virtual and physical debit cards at no extra cost, and manage your finances with a powerful multi-currency account that lets you receive, hold, and spend in major currencies.

You’ll also enjoy cashback rewards on key currencies and the peace of mind that comes with Swiss-level security standards. Plus, local payments across the UK, US, Switzerland, and the EU are completely free – making your transfers as cost-effective as possible.

Since the amnis multi-currency account includes all the features you would expect from the best sole trader bank account, there’s no need to switch business bank accounts.

Set up your free demo account in just 30 seconds and discover how easy and efficient banking can be with amnis.