68 APRIL 2020 http://www.writers-online.co.ukYou can bank on it
Simon Whaley looks at the pros and cons of having a business bank account for your writing
e all remember our first
time. It was 1989, I was
eighteen, and I couldn’t
believe what I was holding
in my hands. (It was a
postal order for £3.50, in
case you were wondering.)
That was the payment for my
first published piece – a word search
puzzle. Little did I know then how
that would be the first of many, many
more payments.
But even then, I knew it would be
sensible to keep this income separate
from my personal income. What I
needed was a separate bank account for
my writing business.Business legalities
If you establish a limited company or
a partnership in the UK, then you are
creating a new legal identity. By law, any
such business must have a separate bank
account in that same name.
However, as writers that’s way beyond
the realms of most of us. Limited
companies may be the way some writers
go, but that’s for highly successful
creatives like JK Rowling.
The rest of us are sole traders, which
means we operate our writing business
in our own name. Therefore, there is no
law that compels us to open a separate
bank account in our own name.
However, it’s not as simple as that.
HMRC’s A General Guide to Keeping
Records For Your Tax Return says, ‘If
you do not have a separate business
bank account, you need to keep records
of which transactions were personal
and which were business. Unless your
business is small or has few transactions,
it would usually be helpful to maintain
a separate bank account or accounts for
the business.’
Mixing personal with business
payments in a single bank account could
mean we don’t pay the right tax. And
if it results in an HMRC investigation,that could result in being fined for poor
record keeping.
Matt Dickinson, spokesperson for
the Federation of Small Businesses
agrees. ‘Generally speaking, it’s a
good idea to open a business account
as soon as possible to keep finances
orderly and clear.’
It’s also important to remember
the Government’s Making Tax
Digital (MTD) policy, which aims
to streamline HMRC’s tax collection
service. Originally, the Government
planned introducing this for income
tax in 2020. This would have affected
writers. However, in March 2019, the
then Chancellor Philip Hammond
announced that the government would
delay the introduction of MTD until
after 2020.
So, although Making Tax Digital is
not looming on the immediate horizon,
having a separate bank account for our
writing business will make the transition
easier when it does eventually happen.
Two years ago, in the February
2018 issue of Writing Magazine when
I last looked at Making Tax Digital,
consultant Barry Kernon at accountants
HW Fisher and Company said, ‘I think
for many people it would be a good
idea to organise their affairs so that
self-employed income and expenses go
through one bank account.’
Therefore, having a separate bank
account for our writing income and
expenses is definitely a sensible decision
to take.Business bank accounts
So, the next question is, do we need
to have a business bank account, or
can we simply open a second personal
bank account?
A survey commissioned by accounting
software company Intuit Quickbooks in
2016, revealed that 75% of sole trader
businesses use a personal bank account
for their business transactions.That’s despite the fact that this often
goes against the terms and conditions of
personal accounts. Barclays Bank’s terms
and conditions state that a personal
current account is, ‘for your personal
use and not for money relating to any
business you run. We can close an
account (or stop providing a service) if
we find out you are using it for non-
personal use, or are not eligible for it.’
The Royal Bank of Scotland’s
personal current account terms clearly
state, ‘Your account must not be used
for business purposes.’
Similarly, Lloyds Bank’s terms and
conditions state that, ‘you must not
open or use a personal account to hold
money for... the purpose of a business,
club, charity or other organisation.’
Running your writing business
through a personal current account
is risky. If your bank spots this they
have the right to close the account for
breaching the terms and conditions.Free banking, or fee banking?
As personal customers, we’re used to
free banking. Business bank accounts
are different. The High Street banks
charge monthly administration fees as
well as individual transaction fees for
the number of credits and debits passing
through a business account, or the
number of electronic transfers.
Even if you don’t bank any royalty
cheques, or incur any writing expenses, the
account will still incur the monthly fee.
Monthly account fees are not
insignificant, and can start from £6,
whilst individual transaction fees can
range from under 50p for an electronic
transaction, to £1.50 for every cheque
paid into your account.
These charges can quickly mount.
If you were to bank two cheques for
your writing sales totalling £200 in one
month, you could end up paying £9
in charges: a £6 monthly fee and an
additional £3 in transaction charges.e all remember our first
time. It was 1989, I was
eighteen, and I couldn’t
believe what I was holding
in my hands. (It was a
postal order for £3.50, inW