How to Separate Personal and Business Finances For Limited Company
How to Separate Personal and Business Finances for a Limited Company
When you’re a freelancer or sole trader, you can pay for a lot of things from your personal account; being self-employed doesn’t automatically mean having to set up a business bank account. But, once you’ve set up a limited company and plan to claim limited company expenses, that changes.
At Go Limited, we encourage contractors in all industries to keep their personal and limited company finances separate. But, we’re realistic and know it doesn’t come naturally to everyone, which is why we’ve created this helpful blog to guide you through the process.
The Importance of Keeping Personal and Business Finances Apart
When you set up a limited company for contracting, your business becomes a separate legal entity in the eyes of HMRC and Companies House. The business has its own money, assets and liabilities, and even if you’re the sole director and shareholder of the business, the business’ money isn’t your personal money to spend as you wish.
If you use your business’ bank account as if it were your own, you run the risk of confusing everything, meaning creditors or HMRC could argue that your business and you are the same. But, by keeping personal and business finances separate, you ensure that your business’ accounts accurately reflect income, expenses and profit. When personal purchases are thrown into the mix, it becomes much more difficult to get a true picture of the business’ financial performance.
It’s also important to remember that HMRC and Companies House expect full transparency when it comes to tax returns, claiming expenses as a limited company and how you pay yourself. If personal expenses are recorded as business costs, you could miscalculate your business’ expenses, underpay Corporation Tax and face penalties. Having separate personal and business accounts makes compliance much easier.
Open a Separate Business Bank Account
It’s a lot easier to keep your personal and business finances organised if you have a separate business bank account. Unlike sole traders and freelancers, limited companies are legally required to operate through their own bank account, as the business itself is a separate entity. So, if you set up a limited company, setting up a business bank account becomes mandatory.
A business account allows your limited company to receive payments from clients directly into its own account and pay suppliers, employees and HMRC. It’s also beneficial when it comes to managing tax-deductible expenses for a limited company.
Top Strategies for Keeping Personal and Business Spending Organised
When it comes to keeping personal and business spending organised, opening a business bank account is only the first step. You also need to think about paying yourself, claiming expenses as a limited company, using the account correctly and tracking your spending.
Pay Yourself Properly
It might be tempting to dip into the business’ finances when you need an income boost, but it’s important to avoid doing so. You need to set up a formal system for director payments and pay yourself properly. There are various ways to pay yourself as a limited company contractor, but a popular route is to pay yourself a salary through PAYE, and then top that up with dividends.
Use Company Cards for Business Spending
With a business bank account comes a business debit card, so make sure to use that for business spending. This includes everything from software and travel, to office supplies and bills. This makes it very clear what costs are limited-company expenses, and what’s not.
Avoid Using Business Funds for Personal Purchases
It doesn’t matter how small or insignificant a personal spend is — using your business bank account can really complicate things. Of course, mistakes happen and if you accidentally use the wrong card, record the transaction and repay the business as soon as possible. This stops it being treated as a director’s loan, which could create problems with tax if it’s left unpaid.
Track Limited Company Expenses in Real Time
You can simplify your finances by tracking limited company expenses in real time, rather than waiting and doing multiple expenses at a later date, when there’s a risk of expenses being forgotten about. It’s a good idea to use digital tools to record expenses as they happen.
Keep Detailed Records of Limited Company Expenses and Spending
HMRC expects directors of limited companies to keep records for at least six years, including receipts, invoices, bank statements, dividend vouchers, payroll records and expense claims. Digital record-keeping systems make this a lot easier.
How to Manage Tax-Deductible Expenses for a Limited Company
There are a lot of benefits of setting up a limited company for contracting, one of which is claiming tax-deductible business expenses, which reduce how much Corporation Tax you have to pay. But, that doesn’t mean you can claim for everything. You can only claim limited-company expenses for costs that are “wholly and exclusively” for business purposes, such as office rent, software subscriptions, accountancy, business insurance, equipment and marketing.
When your business bank account only includes business transactions, it’s simple to identify tax-deductible expenses. Mixing personal spending makes it difficult to justify claims if HMRC asks for evidence, and there’s a risk of genuine business expenses being disallowed.
Claiming Expenses as a Limited Company is Easier With a Dedicated Business Bank Account
Having a dedicated limited company bank account streamlines every aspect of expense management. It helps with:
- Automatic Expense Tracking – Most business accounts sync up with accounting software to categorise expenses automatically, giving you one less thing to keep on top of.
- Clear Audit Trail – It’s a lot easier to have a paper trail when you have a business bank account, and HMRC or your accountant can see exactly where money came from and went.
- Simplified Reimbursements – If you pay for something for the business out of your personal account, reimburse yourself through the company with a simple bank transfer and supporting documentation.
- Faster Tax Returns – Organised financial data makes it a lot easier for your accountant to prepare your Corporation Tax return accurately and efficiently.
Can Limited Company Expenses Be Made Using a Personal Account?
Yes — technically, you can pay limited company expenses using a personal account. But, it’s not usually the best approach. You might use your personal bank account for convenience if you’re out and about, or simply because you forgot which account to use. There’s nothing wrong with this happening occasionally, but it shouldn’t be a regular thing.
If you do buy something for the business using your personal account, keep the receipt and record what the expense was for. You also need to log the transaction in your limited company accounts as a business expense, and then reimburse yourself through the company. Using a dedicated business bank account avoids this risk entirely.
Make Financial Separation Easier
There are things you can do to make financial separation second-nature, reducing the chances of mismanagement and mistakes. These systems reduce human error, improve accuracy and make compliance stress-free.
- Use Accounting Software – There’s a range of accounting software out there, such as Xero and QuickBooks, which automatically link to your business bank account.
- Receipt Scanning Apps – Receipt-scanning apps let you capture receipts instantly, making it a lot easier to stay on top of tracking what you’ve spent, when and where.
- Cloud Storage – Keep all invoices and receipts backed up and accessible, as you never know when you’ll need them.
Personal and Business Finances: Common Mistakes to Avoid
Give yourself the best chance of success by avoiding these common personal and business finance mistakes:
- Using one card for both business and personal use.
- Failing to record director reimbursements properly.
- Taking money out of the business without paperwork.
- Claiming personal items as company expenses.
- Not reconciling your bank account regularly.
Avoiding these mistakes will keep your limited company in good financial health and build trust with HMRC, lenders and investors. Separating your personal and business finances is more than just an accounting best practice — it’s a key discipline that protects your limited company, your credibility and your peace of mind.
With a dedicated business bank account, organised record keeping and proper systems in place, you’ll simplify bookkeeping and tax returns, strengthen your limited company’s legal protection, and make it easier to track profit, performance, and cash flow. It’s also a great way to present a professional, trustworthy image to clients and partners.
At Go Limited, we understand the ins and outs of contracting through a limited company, and that includes the importance of keeping personal and business finances separate. If you establish good financial management habits now, you’ll make contracting simpler going forward.
Limited Company FAQ's
What is a limited company for contractors?
A limited company is a business structure where your company is legally separate from you as an individual. This means your personal finances are protected — you're only responsible for business debts up to the value of your shares.
For contractors, this setup offers flexibility and tax efficiency. You become both the director (who runs the company) and the shareholder (who owns it). You invoice clients through your company, get paid into your business bank account, and then pay yourself a mix of salary and dividends.
It's a popular route for contractors in IT, construction, engineering, and other professional sectors who want to keep more control over their income and business decisions.
How does a limited company compare to an umbrella company?
Both options are legal ways to work as a contractor, but they're quite different.
With an umbrella company, you become an employee of that umbrella. They handle tax, payroll, and admin, but you have less control and take home slightly less money after deductions.
With a limited company, you're your own boss. You manage your own accounts (or use an accountant), decide how to pay yourself, and can claim a wider range of expenses — like travel, equipment, and training costs.
In short:
1. Umbrella company = easier setup, less admin, lower take-home pay.
2. Limited company = more control, better tax efficiency, slightly more responsibility.
Go Limited helps contractors compare both routes before deciding what's best for their situation.
Can I work for Uber through a limited company?
Technically yes — but it depends on Uber's own requirements and your tax setup.
Uber typically treats drivers as self-employed individuals, not limited companies. However, some drivers choose to set up a limited company for flexibility, particularly if they have multiple income streams (like delivery work, contracting, or vehicle rental).
If you do this, it's important to make sure your company is registered properly with Companies House and that you're handling Corporation Tax, VAT (if applicable), and personal taxes correctly. An accountant can help make sure everything stays compliant.
How do I close a limited company as a contractor?
If you've finished contracting or want to move to an umbrella company, you can close (or "strike off") your limited company.
There are two main ways:
1. Voluntary strike-off (DS01) — if your company has no debts and hasn't traded for 3 months.
2. Members' voluntary liquidation (MVL) — if your company has over £25,000 in retained profits and you want to close it tax-efficiently.
Your accountant can guide you through the process to make sure all tax, payroll, and final accounts are settled before applying to Companies House.
How long does it take to fold a limited company?
Closing a company normally takes about 3 months once you've applied to strike it off with Companies House — provided everything is in order.
If you're going through a Members' Voluntary Liquidation (MVL), it can take a bit longer because a licensed insolvency practitioner has to handle the process. But the good news is that an MVL can be much more tax-efficient, especially if you qualify for Business Asset Disposal Relief (BADR), which reduces Capital Gains Tax to 10%.
Can a limited company help reduce child maintenance payments?
This is a question that comes up often, but it's important to be clear: you can't legally use a limited company to avoid paying child maintenance.
However, how you pay yourself — salary vs. dividends — can affect how your income is assessed. The Child Maintenance Service (CMS) usually looks at your declared taxable income, which means they'll consider both salary and dividends from your company.
If you're unsure, it's best to seek professional advice. Go Limited can help ensure your finances are transparent and compliant while supporting your family obligations responsibly.
What taxes do contractors pay through a limited company?
As a limited company contractor, you'll deal with a few main types of tax:
1. Corporation Tax (currently 25% for most companies) on company profits
2. Income Tax and National Insurance on your salary
3. Dividend Tax on dividends you take from your company
4. VAT (if your turnover is above £90,000 or you register voluntarily)
You'll also need to file annual accounts and a confirmation statement with Companies House. Go Limited's accountants handle all of this for you, so you can focus on your contracts and clients.
How does IR35 affect limited company contractors?
IR35 determines whether you're genuinely self-employed or effectively working as an employee.
If your contract falls inside IR35, you'll pay tax similar to an employee — meaning less flexibility and lower take-home pay.
If it's outside IR35, you can continue to pay yourself through dividends and enjoy the full benefits of being a limited company contractor.
Since April 2021, the end client usually decides your IR35 status if you work for a medium or large organisation. It's crucial to have your contracts reviewed regularly to stay compliant and avoid unexpected tax bills.
What are the benefits of being a limited company contractor?
The biggest benefits include:
1. Higher take-home pay through tax planning
2. Professional credibility with clients
3. Limited liability — personal assets protected
4. Flexibility to work with multiple clients
5. Wider expense claims for tools, equipment, travel, and training
It also helps you build a long-term business with real growth potential — something you don't get as an umbrella employee.
Is running a limited company worth it for contractors?
For many contractors — yes, absolutely. If your day rate is high enough to justify the admin (typically above £150–£200 a day), a limited company is often the most rewarding and flexible way to work.
You'll have more control, more earning potential, and better opportunities to plan for the future. And with the right accountant or service provider, the admin side can be straightforward too.
At Go Limited, we take care of everything, from setting up your company and managing payroll to ensuring ongoing compliance with HMRC and Companies House. That means less hassle for you and more time doing what you do best.
Important:
Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
When choosing an accountant, look for one with proven experience and expertise in the contracting sector, particularly around areas like IR35, limited company tax matters and off-payroll working. Formal qualifications are important, but relevant hands-on knowledge matters just as much — especially in a complex and fast-changing landscape like this.
