Private Bank Transactions

Why private bank transactions should be kept separate from business transactions?

Do you tend to pay for business expenses through your private bank account? Do you pay the odd company expense through your private account? Are your private and business bank transactions not kept separate?

If your answers are yes to the above questions, then consider your position with regard to HMRC in light of the case below.

A recent case concerns a self-employed carpenter who paid balances due on his business credit cards and some bills  through his private bank account. When HMRC opened enquiry he admitted paying some bills using private bank account. HMRC claimed that since private bank account is being used for making business bill payments and therefore they form part of business records and would need a full statement of private account.

Nothing can be more scary if you get into the above situation. Your full private life being investigated that is where you eat, what you do and where you spend. Unfortunately carpenter mixed his business and private transactions and could not avoid this situation, despite appeal by his accountant. Accountant submitted full detail of the transactions to HMRC but they insisted on seeing private statements. The case was appealed but client lost and Tribunal ruled in favour of taxman.

The Tribunal ruled that since there are regular transactions are being made through private account they are considered to be part of business records and therefore HMRC request of private bank statements is not unreasonable or illegal. One may well wonder whether had the business-related transactions through the private bank account been less, whether the tribunal would still have upheld HMRC’s position regard the information notice and the penalty. We will never know. But there is a moral to this story which is common business sense: do not mix business and private. This goes for bank accounts, credit cards, phone lines and equipment, such as cars and laptops. Keep business and private affairs apart. It will make life more simple, and keep the tax man much happier.

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