The short answer
- The IRS tells new business owners to open a business checking account and keep it separate from their personal account (Publication 583).
- In the UK, a sole trader may use a personal account, but HMRC expects records that let you identify business transactions. From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records under Making Tax Digital.
- If you run an LLC, mixing personal and company money is one of the factors courts look at when deciding whether to hold owners personally liable.
- Pay yourself with a regular transfer from the business account, and split mixed costs (phone, car, home office) with one written rule you apply all year.
- If everything is already mixed, don’t delete anything: go back through your statements month by month and tag each line.
Why separating matters, even when no law forces it
When one account receives your rent, your groceries, client payments and equipment purchases, three problems follow.
- You can’t see what the business earns. A $2,400 balance means little if $1,500 of it is next month’s rent.
- Tax time turns into archaeology. You have to work out, line by line, which deposits were business income. A missed or double-counted payment skews your return.
- Questions from the tax office take longer to answer. Every personal transaction sitting among business ones is something you may have to explain.
IRS Publication 583 puts it simply: the business checkbook is your basic source of information for recording business expenses, and you should deposit all daily receipts into it. The same logic applies to a UK sole trader’s bank feed.
The US picture: sole proprietors and LLCs
Sole proprietors. A sole proprietorship has no existence apart from its owner, and its liabilities are the owner’s personal liabilities (Publication 583). There is no federal rule requiring a separate account, but the IRS recommends one and asks you to note the source of each deposit: business income, personal funds or a loan. If you run more than one business, keep a complete and separate set of records for each.
How long to keep records. Generally three years from filing for income tax, six years if you fail to report income worth more than 25% of the gross income shown on your return, and at least four years for employment tax records.
LLCs. Members of an LLC are generally not personally liable for its debts. Courts can set that protection aside, a doctrine known as “piercing the corporate veil”. Cornell Law School’s Legal Information Institute notes that courts start from a strong presumption against piercing and usually look for serious misconduct, with factors such as intermingling of personal and company assets, undercapitalisation and treating the company as the owner’s alter ego. Rules vary by state, and no single factor settles it. A separate account won’t guarantee your protection, but paying groceries from the LLC account is the kind of evidence that weakens it. Ask a business attorney in your state if liability matters to you.
The UK picture: sole traders and Making Tax Digital
GOV.UK says a sole trader might be able to use a personal or business bank account, so check with your bank which type of account it allows for business transactions. What HMRC does require is that your records are accurate and that you can identify business transactions. Since the 2024 to 2025 tax year, cash basis is the default accounting method.
Keep your records for at least five years after the 31 January submission deadline of the relevant tax year. GOV.UK’s example: a 2022 to 2023 return sent by 31 January 2024 means keeping records until at least the end of January 2029.
Making Tax Digital for Income Tax started on 6 April 2026 for qualifying income from self-employment and property over £50,000, based on the 2024 to 2025 return. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. Those in scope keep digital records in compatible software and send quarterly updates by 7 August, 7 November, 7 February and 7 May. A clean business-only account makes those updates far quicker.
Set up the split in an hour
- Open the business account. A basic checking or current account is enough to start. Give it an obvious nickname in your banking app.
- Redirect income. Put the new account details on your invoices, website, marketplaces and payment apps.
- Move business subscriptions. Software, hosting, professional insurance, memberships: anything that serves the business is paid from this account.
- Get a card tied to the account and keep it somewhere different from your personal card. It sounds trivial, but it’s what stops a personal tank of fuel landing on the business card.
- Keep a small cash float if you take cash, and record each sale the same day.
Paying yourself: the owner’s draw
As a sole proprietor or sole trader you don’t pay yourself a salary; you take money out of the business. That draw is not a business expense. HMRC is explicit that allowable expenses do not include money taken from the business for personal use, and the IRS suggests writing checks to yourself only for withdrawals for personal use. You are taxed on your profit, whatever you transfer.
The simplest method is a fixed transfer on a fixed date. Example: Maya, a freelance copywriter in Leeds, invoices about £3,500 a month. She leaves enough in the business account for her tax bill and running costs, then transfers £2,200 to her personal account on the 1st. In a strong month she adds a second transfer labelled “top-up”; in a slow month the buffer keeps her £2,200 steady. How much to set aside for tax depends on your situation, so ask an accountant for a figure rather than guessing.
Mixed expenses: one rule, written once
A phone, a car or a room at home serves both your life and your work. Don’t decide case by case. Choose a method, write down how you worked it out, and keep it until your situation changes.
| Expense | Common way to split | What to keep |
|---|---|---|
| Phone | Business share of calls and data | Two or three itemised bills |
| Car or van | Business miles ÷ total miles | Mileage log: date, destination, purpose, miles |
| Home office (US) | Actual costs by area, or the IRS simplified method | Measurements, photos of the space |
| Home office (UK) | Actual costs, or HMRC’s flat rate by hours worked | Record of hours worked at home |
Phone
Common way to splitBusiness share of calls and data
What to keepTwo or three itemised bills
Car or van
Common way to splitBusiness miles ÷ total miles
What to keepMileage log: date, destination, purpose, miles
Home office (US)
Common way to splitActual costs by area, or the IRS simplified method
What to keepMeasurements, photos of the space
Home office (UK)
Common way to splitActual costs, or HMRC’s flat rate by hours worked
What to keepRecord of hours worked at home
The IRS gives this example: a florist drives a van 20,000 miles in a year, 16,000 of them for deliveries, so only 80% of the van’s running costs count as a business expense. Instead of actual costs, you may be able to use the standard mileage rate, which the IRS announces each year.
For a US home office, the space must generally be used regularly and exclusively for the business. The simplified method allows $5 per square foot for up to 300 square feet, so at most $1,500 a year. In the UK, the simplified flat rate is £10 a month for 25 to 50 hours worked from home, £18 for 51 to 100 hours and £26 for 101 hours or more. It doesn’t cover phone or internet, which you split on actual costs.
GOV.UK uses a phone bill to show the principle: bills total £200 for the year, £130 of it personal and £70 business, so you can claim £70.
- Business use35 %£70calls to clients and suppliers, the part you can claim
- Personal use65 %£130family and friends, not claimable
If the bill is paid from your personal account, the business can reimburse its share with a monthly transfer labelled clearly (“phone, 35% business”). The reverse works too. What matters is a trail and a consistent rule.
The ten-minute weekly review
The split holds if you check it often. Pick a day, Friday for example:
- Scan the week’s transactions on the business account
- Match each payment received to an invoice
- Photograph and file the week’s receipts
- Spot any personal spending on the business card, and the reverse
- Fix it with a clearly labelled reimbursement transfer
- List unpaid invoices to chase
For small cash purchases, our weekly cash-purchase routine and how to photograph a readable receipt cover the details. For invoices themselves, see how to write an invoice.
If everything is already mixed
Don’t delete or edit anything in your statements. Export them from the start of the tax year and work month by month in a spreadsheet. Add a column for “business / personal / mixed” and one for “receipt”. Start with income, since that’s what you report: match every deposit to an invoice or sale. Then work through business expenses, requesting duplicate receipts from suppliers where you can.
Then open the business account and apply the split from the first day of next month. If the sums are large, if you run an LLC, or if you’re worried about a past return, a CPA, enrolled agent or chartered accountant can tell you how to put things right.
Keeping both sides in Binome360
Binome360 doesn’t connect to your bank: you log transactions in a sentence or by voice, and accounts (cash, bank, mobile money) are kept by hand. What helps with separation is that you can run one assistant for yourself and another for your business, each with its own accounts, categories and budgets.
Harbour Books paid £850 by bank transfer for the catalogue copy, invoice 2026-031
Ready: £850 income to “Business bank”, category Client work, from Harbour Books, ref. invoice 2026-031. Save it?
Nothing is saved until you confirm. Your income then appears in the export.
Try Binome360 for freeYou can also snap a receipt photo: the amount and category are proposed, then you confirm. Exports help you pass records to your accountant or tax software. Binome360 is not accounting or Making Tax Digital software, and it doesn’t replace professional advice.
Frequently asked questions
Do I legally need a separate business bank account as a sole proprietor?
In the US there is no federal requirement for sole proprietors, though the IRS recommends one. In the UK, GOV.UK says you might be able to use a personal account for a sole-trader business, so check with your bank which type of account it lets you use for business transactions.
Does mixing money automatically cost an LLC its protection?
No. Courts presume against piercing the corporate veil and look at several factors, usually alongside serious misconduct. Commingling is one of those factors, which is why keeping the LLC’s money separate is basic protection.
Can I pay a personal bill from the business account in a pinch?
Better not. If it happens, repay the business account promptly with a clearly labelled transfer, and note it in your weekly review.
How do I work out the business share of my phone?
Take two or three itemised bills, estimate the share of calls and data that relate to clients, and keep that calculation with your records. If in doubt, use a cautious estimate.
In short
Separating personal and business finances comes down to one account for the business, a regular transfer to pay yourself, a written rule for every mixed expense and a ten-minute weekly check. The IRS recommends it, HMRC’s record-keeping and Making Tax Digital rules reward it, and for an LLC it protects the line between you and the company. First action: open the business account this week and put its details on your next invoice.
Sources
- Internal Revenue Service, Publication 583: Starting a Business and Keeping Records, revised December 2024: irs.gov/publications/p583.
- GOV.UK, “Business records if you’re self-employed” and “How long to keep your records”: gov.uk/self-employed-records.
- GOV.UK, “Expenses if you’re self-employed” (mixed business and personal use): gov.uk/expenses-if-youre-self-employed.
- GOV.UK, “Simplified expenses if you’re self-employed: working from home”: gov.uk/simpler-income-tax-simplified-expenses/working-from-home.
- HM Revenue & Customs, “Find out if and when you need to use Making Tax Digital for Income Tax” and “Send quarterly updates”: gov.uk/guidance/find-out-if-and-when-you-need-to-use-making-tax-digital-for-income-tax.
- Legal Information Institute, Cornell Law School, “Piercing the corporate veil”, Wex legal encyclopedia: law.cornell.edu/wex/piercing_the_corporate_veil.
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