A guide to sole trader bank accounts

If you’re self-employed or planning to start your own business, you might be wondering whether you need a separate bank account. This guide explains what it means to be a sole trader and how a small business bank account can help you stay organised and in control of your money.

What is a sole trader?

A sole trader is an individual who owns and operates their own business. It's also called being a sole proprietor or a self-employed person.

As a sole trader, there's no legal separation between you and your business. That means you retain all the business profits and are personally responsible for any debts or losses.

It’s the simplest and most common way to start a business in the UK.

What's the difference between a sole trader and a self-employed person?

There is a difference, even though the terms are often used interchangeably. A sole trader is a type of self-employed individual with a specific legal status. In contrast, self-employed is a broader term and can include freelancers, contractors, or partners in a business.

If you register with HMRC as a sole trader, you’re both a sole trader and self-employed.

Do I need to register as a sole trader?

Yes – if you’re earning money from your business, you must tell HMRC.

You need to register as a sole trader if you:

• earn more than £1,000 from self-employment in a tax year
• want to prove you’re self-employed (for example, to claim benefits or apply for a mortgage)

You can register on GOV.UK. Set up as a sole trader

Can I use my personal bank account as a sole trader?

It’s not illegal, but it’s not recommended.

Using your personal bank account for business purposes can make it harder to track income and expenses, lead to confusion when filing your tax return, and put your money at risk if your business faces legal issues.

Maintaining a separate business bank account makes your finances more transparent and professional.

Bank accounts for sole traders

A dedicated business bank account helps you:

• keep business and personal money separate
• stay organised for tax and accounting
• look more professional when invoicing clients

Business banking for sole traders

Many banks offer business accounts designed for sole traders and small businesses. These often include:

• no or low monthly fees
• invoicing and payment tools
• integration with accounting software (like Clover or Xero)
• easy expense tracking

How do I pay myself as a sole trader?

As a sole trader, your business profits are your income. There’s no need to set up payroll unless you employ others.

You can pay yourself by withdrawing money from your business account to your personal account. Make sure to keep track of how much you take to help with budgeting and tax purposes.

You do not pay yourself a salary or dividends unless you’re a limited company.

Can sole traders have employees?

Yes. You can hire employees as a sole trader.

If you do, you’ll need to:

• register as an employer with HMRC
• set up payroll
• deduct tax and National Insurance from staff wages

How to open a sole trader bank account

Opening a business account is easy. Most banks let you apply online in under 30 minutes.

You usually need:

• proof of ID, such as a passport or driving licence
• proof of address, like a utility bill or bank statement
• your business details, trading name, nature of business and HMRC registration
• financial information, such as expected turnover or a business plan

Whether you're just starting or have been trading for years, a business bank account allows you to keep personal and business finances separate and track income and expenses more easily.

Our business bank accounts

We offer a range of bank accounts tailored to your business size and needs. Find a business bank account.