By Ashley Preen

November 29, 2016

How a business bank account works for contractors

As a contractor, you use a business bank account a little differently than you would a personal account. When you do contracting work as a limited company, you and your business are separate legal entities, which means the business bank account is owned by your limited company rather than you personally.

The money going in and out of the business bank account will form part of your accounts. This guide will help make sure you are doing everything properly and legally.

Paying in and out of your contractor bank account

Any money you receive for work you do as a contractor will be paid into your business account, and the profits will later be paid into your personal account in the form of a salary.

In the past, contractors would be given a cheque book with their account. You would then be able to deposit money paid by clients, and write any checks on behalf of your company to pay any bills or taxes. In today’s modern world, things often work differently, with not many people using cheques any more.

Digital, online bank accounts for contractors

Just like your personal account, business accounts are often partly or completely online, with clients able to pay you through a bank transfer directly from their bank account to yours. The same is also true for when contractors pay bills or taxes on their company’s behalf, and when paying a salary – you can digitally transfer money from your business account to your personal one.

Mobile business banking

Again, just like you probably already have with your personal account, as a contractor you can usually use your business bank account on your mobile, using your bank’s app to transfer money whenever and wherever, without needing to ever visit one of your bank’s branches. Online banking is very useful for contractors because they often work at different locations around their town, city, or country – with online banking you never need worry about finding a branch near where you are working.

Record keeping with your business bank account

Bank statements from your business bank account are some of the most important documents when it comes to completing accounts and filing tax returns because it is a record of all the money going in and out of the business.

Banks usually let you access your statements online, as well as sending you paper statements in the post. Often, your bank will allow your accountant to access information in the account to help them prepare your accounts and file taxes.

Better recordkeeping with digital banking

One of the more time consuming parts of being a contractor is all the admin, and working out what money came from where. This is made a lot easier with digital banking because the records can be made clearer by adding notes to each payment. For example, any money paid by the business to you as a contractor can be put into categories such as salary and expenses.

Business bank accounts are a legal requirement for contractors working as a limited company, but they are also very useful for you and your accountant when making business records and filing tax returns efficiently.