5 reasons it’s not a good idea to mix business and personal funds
It can be easy to use your limited company business bank account as a personal debit card but this is a habit that could land you in mess or hot water for a whole host of reasons. We’ll explain all the reasons why in this blog post.
Bookkeeping headaches
The more you mix up these funds, the more separating and unpicking there is to do at tax time. This will cause an extra time and energy drain on you or extra fees from your accountant/bookkeeper to sort through your transactions.
Nasty tax implications
Using your business funds for personal expenses can land you in hot water with the tax authorities. If you end up owing your business money (resulting in an overdrawn director’s loan account), you could face hefty penalties known as S455 tax.
Prone to costly errors
Mixing up personal and business expenses increases the chances of making costly mistakes. You might accidentally claim personal expenses as business expenses, inviting scrutiny and potential penalties from tax authorities. On the flip side, messy records could cause you to miss out on legitimate tax deductions, leaving money on the table that could benefit your business.
Harms cash flow
Using your business account like a personal piggy bank makes it difficult to forecast cash flow accurately. Without a clear separation between personal withdrawals and business expenses, it’s hard to predict how much money your business actually has available for operations, investments, and growth. This can leave your business vulnerable to cash shortages.
Lack of financial clarity
Mixing personal and business finances blurs financial clarity. It becomes challenging to accurately track business performance and understand your businesses' financial health to make informed decisions.
Always remember that your limited company and its funds are legally separate to you. While using your business bank account for personal expenses might seem convenient at the time, hopefully we’ve convinced you that tax headaches and financial penalties aren’t worth it. You’ll also give yourself the clarity needed to make smart financial decisions that support your business's growth and success.
Wondering why your accountant has never explained all this to you before? Longing for a calm and stress-free approach from a female accountant to managing your business finances? Get in touch with us for a discovery call - we’d love to chat!
