Tax filing deadlines can creep up on your business, so it’s important to get on top of your tax liabilities from the start.
Many new business owners find it easier to mingle their business finances with their personal money, especially when they first start out. But this common mistake can prove costly in the long run, making bookkeeping and paying tax harder. If you’re asking, ‘can I file my personal and business taxes separately’, it’s a good prompt to separate your business and personal bank accounts to streamline tax filing.
How and when you file tax returns depends on your business structure.
If you’re a sole trader – Business and personal taxes are filed at the same time. While legally you don’t need separate business and personal accounts, it’s a good idea to do so.
If your business is a limited company – Business taxes are filed separately from your personal taxes. Legally, you must have a dedicated business bank account for all business transactions.
If you’re part of a limited liability partnership – This works similarly to a sole trader. You take income from the LLP and file a self-assessment form at the end of the year. The LLP needs its own business bank account, however.
Can I file my personal and business taxes separately if I’m a sole trader?
The short answer is no. HMRC sees all earnings as a single, taxable income for sole traders – no matter the source. This means that you’ll make a single filing with HMRC each year as part of self-assessment. As a sole trader, you’ll need to pay the right amount of tax on business profits, as well as National Insurance Contributions (NICs).
Your income tax and NICs must be paid by midnight on the 31st January following the end of the tax year. Each tax year runs from 6 April to 5 April, so you will pay tax on all the profits you’ve made during that period.
Paper self-assessment forms must be received by HMRC by midnight on 31st October. The deadline for completing the online form is midnight on the following 31st January.
Sole traders – business accounts and taxes
As a sole trader, it’s tempting to use a single bank account for both personal and business earnings and expenditure. HMRC views all self-employed income and personal income, such as interest on savings accounts, as one and the same.
However, separating your business and personal accounts makes sense. Keeping business income and expenses separate saves time filing tax returns. It avoids the need to scrutinise personal bank statements in order to separate personal expenses from legitimate business expenses. If you accidently over-report profits you could end up paying too much tax.
If you’re self-employed and operate as a sole trader, it’s best to open a separate bank account for business activities. It makes your business look more professional, and many high street banks offer free banking services for the first year.
Can I file my personal and business taxes separately if I’m the director of a limited company?
You’ll need to file your business and personal taxes separately if you’re the director of a limited company. The business must file annual accounts with HMRC and pay Corporation Tax on any profits for the financial year. For businesses with taxable profits of less than £1.5m, you have until 9 months and 1 day to pay any Corporation Tax that is due.
As a director, you’ll also need to file a self-assessment form detailing any personal income. Paper self-assessment forms must be received by HMRC by midnight on 31st October. The deadline for completing the online form is midnight on the following 31st January.
Limited companies – business accounts and taxes
The rules regarding separate business and personal bank accounts are clear cut for directors of a limited company. As the company is a separate legal entity, it requires a dedicated business account. Transferring money from a business account to a personal account can happen only via legally allowable means such as via PAYE salary payments, loans to directors and dividend payments.
Can I file my personal and business taxes separately if I’m a member of an LLP?
LLP members take a share of income from the LLP during the year, and then each individual files a self-assessment tax return with HMRC in the same way a sole trader would. This includes reporting all income – professional and personal – from all sources and paying income tax and NICs on all income.
Limited Liability Partnerships – business accounts and taxes
LLPs operate slightly differently to limited companies, with owners being known as ‘members’ of an LLP. It needs a dedicated business account for all business transactions, and money can only be transferred along similar lines to a limited company.