Deciding whether to open a separate bank account for your content creator income depends on whether you operate as a sole trader or you run a limited company. In a nutshell, YES is the answer to both questions, though for some content creators it may be a need, for other’s a want.
If you’re a limited company = Need: there are potential tax and legal implications if you don’t have a separate bank account for your company.
If you’re a sole trader = Want: there are benefits to separating your work income from your personal, like less admin, tidier records for HMRC etc.
Let’s dig a little deeper. In this blog, we’re going to look at:
- The advantages of a second bank account for both sole traders and limited companies
- The most common banking setup for content creators
- The most common questions we get asked relating to multiple bank accounts
1. The advantages of a second bank account for both sole traders and limited companies
If you run a limited company, you need a separate bank account for your business transactions
A Limited Company is governed by company law and is seen as a separate entity from the business owner who runs it. This means all the money you make from running the business belongs TO the business, and you take on the role of Director.
Think of it like this – when you own a limited company you become an employee of your own company. Most often the money you’ll take out of the company will be your salary. When you set up your limited company you may have learned about other ways to take money out of the business personally. Or it could be completely new to you. Either way, here’s a brief look at those options:
- Salary – like any other employee, you’ll need to pay yourself a salary as your main source of personal income.
- Dividend – a dividend is a share of the business profits paid out to a company’s shareholders. It’s important you get advice on how to take dividends out of the business so you’re doing it in the right (and smartest way) for tax.
- Expense repayment – when you buy things for the business using personal money, provided you keep track of the receipt, you can reimburse yourself the expenses.
- Directors loan – when you borrow money from your own business, it’s called a Directors Loan. Directors’ Loans are different from all the methods of payment mentioned above (salary, dividend, expense). A directors loan can be useful in some circumstances, but can also cause a bit of a tax nightmare if not done correctly, so this is another one where we highly recommend getting advice so you don’t shoot yourself in the foot.
- Benefit in kind- these are the “work perks” you can take out of your business and provide to employees. Things like company cars, childcare vouchers, cycle to work schemes etc. These are pretty complicated tax wise though, definitely get advice to use these correctly.
The reason we recommend getting advice on how to take money out of your limited company is because of those separate entity rules.
So it’s vital as a starting point to have a separate account for your business. As a bare minimum you’re able to separate the profits that belong to the business from the regular salary that belongs to you. If you don’t separate your income this way, it can get messy. Personal and business money will get muddled and could result in some high tax charges and legal implications.
If the business transactions are going into a personal bank account and not into a business account under the company name, it will be treated as a Directors Loan withdrawal from your business, resulting in a 32.5% tax charge on your income. Umm, no thank you! You don’t want that.
If you’re a limited company – ask us to help you figure out the most tax efficient way to take your salary out of your business account. Tax plans need to be put in place to withdraw salary/dividends, so you’re not getting slammed.
- All business transactions need to go directly into/from a limited company bank account
- If not, they will be treated as Directors Loans – you don’t want this.
- This will resulting in a 32.5% tax charge + benefit in kind issues
- Even Paypal accounts need to be in the company name
- Tax plans need to be put in place to withdraw salary/dividends, ask for help with this.
Besides all the legal/tax reasons, separating your bank accounts can be good for the sanity of a limited company owner.
Being able to easily identify what is personal and what is business can save you time and energy. We’re going to look at this next for Sole Traders, but the same advantages apply.
If you’re a sole trader with various streams of income, having a business bank account will save you hours of admin work every year
As a content creator, you’ll have various streams of income. With all these incoming payments, it’s important to be able to separate out your salary and expenses (i.e. personal living expenses).
The reasons why:
- TRUST ME when I say this will save you hours of undesirable admin work. If you don’t have a separate account, you’ll have to print 12 months worth of bank statements when it comes to tax time, highlight all the business transactions in your account and cross out all the personal ones. Not fun. It’ll also cost you more money for an accountant to work through for your tax returns. Good to avoid all round.
- You’ll be able to see when you’re approaching/over the VAT threshold – if your business income reaches £85,000, you will need to register for VAT and account for the VAT you charge customers or have been charged by suppliers.
- You’ll be able to connect your business bank to Xero – As of (April 24) this will no longer be just an advantage, it’ll be necessary for Making Tax Digital (MTD), the government move to entirely digital tax records. Getting started now is the right move, it means a smoother accounting process and less time wasted doing things manually.
- It’ll allow your accountant to do accurate, regular bookkeeping for you – You’re a creator – that’s where you find your joy. Working with an accountant means you can hand off all the accounting stuff to them to sort – and sorting is made a lot easier when business income is separated out. When we have a clear view, we can make sure you’re only paying the tax you need to be (and no more), and make sure you’re claiming back all your expenses.
At Ocelot, we prioritise our clients’ goals and long term ambitions. Bigger picture, separating your sole trader income and paying yourself like an employee can help you treat what you’re doing as a viable business. You can see how your business is supporting your short and long term life goals, and get some helpful advice to make it work better for you.
2. The most common banking setup for content creators
First, set up a separate bank account for your business. Side note: I usually recommend; Starling, Revolut, ANNA or Tide Bank. All pretty modern digital banks which you can setup from an app within 24 hours & they all connect to Xero.
Following that, it can be helpful to set up a business Paypal account for income like donations from fans/subscribers. This income then flows to your business account once a month.
All other income (like Twitch, YT, Patreon etc.) goes directly into the business account. All business expenses come directly from the business account.
- For Sole Traders: You can then transfer weekly/monthly amounts from the business account to the personal account for living expenses/tax budgeting.
- For Limited Companies: Remember, ask us to help you figure out the most tax efficient way to take your salary out of your business account. Tax plans need to be put in place to withdraw salary/dividends, so you’re not getting overpaying tax or getting in any tax dramas.
3. The most common questions we get asked relating to multiple bank accounts
Q: Can I have more than 1 bank account?
A: Yes you can have as many as you like.
Q: As a sole trader does my bank account have to be a proper ‘business account’ or can I use a 2nd personal account?
A: Some bank’s T&Cs ask you not to use a ‘personal account’ for business reasons, so there is a risk they can raise red flags if they see business activity within it. But generally there is no legal HMRC requirement to do so.
Q: Do I need to share the activity of all my personal bank accounts?
A: Nope, there’s no requirement or need to! If you’ve used your personal bank account to pay for business expenses, we can give you a spreadsheet to drop all of the business transactions into so we can upload it to your accounts.
Q: If I get paid into my personal account does that mean I’m taxed personally?
A: No not necessarily, it really depends on how your channels and contracts are set up, since a Limited Company is a separate legal entity we really need to understand who ‘earned’ the income, the business or the person.
Q: Do I get taxed on amounts going into my PayPal account or only when I withdraw it?
A: As soon as any amounts hit your PayPal account they are considered ‘earned’ and so should be taxed! However, there’s an odd few websites/platforms that will consider your money theirs till you withdraw it, and so it’s best to consult us on each and every income stream just in case.
Got a question about business banking we haven’t covered?
Let us know! We’re working with content creators every day, and we see these experiences pop up a lot. If there’s something you’re still unsure about, we’re here to help. Drop us an email.
We work exclusively with content creators involved in streaming, gaming and esports, youtube, influencing and modelling. We know how important it is to feel secure when you have different income streams and big life goals.
It can feel a lot more reassuring to get support from an accountant who knows your industry, knowing you’re getting advice specific to what you do. Plus we just love hearing about your pursuits! See what it looks like to work with us by visiting our how we work page.