Many small businesses, including landlords, use personal bank accounts to lodge business receipts and make business payments. If traders in this situation are subject to a HMRC enquiry into their business affairs, HMRC would be entitled to request sight of all bank accounts that record business transactions even if those accounts are essentially, personal bank accounts.
As many of the transactions in these accounts are personal, you may need to explain to HMRC where credits to the account came from and provide evidence that the credits are nothing to do with your business.
Without this confirmation or evidence, monies that have nothing to do with your business may be treated as if they are business receipts by HMRC.
Accordingly, if you have let property or a small business, open a separate business bank account and pass all your business transactions through this account. Keep personal bank accounts for personal transactions.
There is nothing worse than trying to remember what the £2,000 credit to your personal/business account was, two or three years after the event, and merely saying that it was a gift from Aunt Mary will not pass muster with the tax office. Inspectors will assume that this is undisclosed business takings or rents.
If you insist on using a personal account for business and personal purposes, then you will need to keep evidence of both personal and business transactions. In our example quoted above this would involve a signed letter from your Aunt confirming the amount and date of the gift made.
HMRC investigators do not have an automatic right to see your personal accounts. In the first instance they will likely be limited to access to business records. Of course, they would like access to your private accounts, as this will evidence more information about lifestyle spending. And so, mixing accounts for business and personal matters will possibly open up investigations unnecessarily.
Keep private accounts private…All news