If you are a business owner and run your own business, then you likely have both a personal account and a business account in your name.
This is common practice, and most business owners will have both accounts. However, as one is a personal and one is a business account, they both operate very differently.
You are free to transfer money from your personal account as and when you please. But, the rules for business accounts are very different.
In this quick guide, we’ll be taking a look at whether, or not, it is legal to transfer money from your business account to your personal account, and lots more. So, keep on reading!
Yes, it is perfectly legal to transfer money from a business account to a personal account.
When you think about it, it would make absolutely no sense for this to be illegal, as it would prevent businesses from paying their employees.
It would also prevent small business owners from paying themselves a wage to use on personal purchases. So, yes, it is legal to transfer money from a business account to a personal account.
This transfer is seen as an ‘income’, so it can only be transferred to someone who works for the business.
If you are a sole trader with a business account, then you are free to transfer money to and from your personal account as you please.
You are the sole employee of that business, so the money is all yours.
As long as you pay your taxes, then you are doing nothing wrong by transferring money from your business account to your personal account to use as you please.
If you are new to running your own business, then there is a lot that they don’t tell you. One of the main things being how you pay yourself from the business account.
Even though you are the owner of the business, you are still technically an employee of the business, so you must be paid a wage for the work that you do.
You have a few options as to how you pay yourself, you can either pay yourself through a draw, a salary, or a combination of both.
A draw is a direct payment that is made from the business account to your personal account, avoiding the payroll. This is a popular method for sole traders and businesses with very few members of staff.
If you own a larger business, then you may choose to pay yourself a salary by adding yourself to the payroll, where your taxes will be paid manually.
Most business owners choose to pay themselves through a combination of both.
No, you should not take money out of your business account to cover personal expenses.
Likewise, you should not use your business account card to pay for personal purchases.
This practice is not illegal, but it is the beginning of a slippery slope that can lead to a variety of issues. These issues include legal problems, tax issues, and operational errors within your business.
A company’s accounts should be well organized and maintained, making personal purchases with the business account can knock these accounts out of whack.
Making personal purchases with your business account isn’t an issue when your business is small.
The problems only really become apparent as the company grows, and you take on more members of staff. Suddenly, the books will not match up, and you might find yourself struggling to cover the costs of the business.
So as a rule of thumb, it is best not to take money out of the business account for personal use. Instead, pay yourself a salary, then use that for personal purchases.
The length of time that it will take for money to transfer from a business account to a personal account will really depend on the bank that you work with.
Some banks operate faster payments, so some transfers will be made instantly. While others do not offer this service and payments can take anywhere between a couple of hours and a couple of days to complete.
The bank that both your business and personal accounts are with will influence how quickly transfers will be made.
So, if you have any questions about this, it is best to contact your bank directly to find out how long it should take.
In short, yes, it is legal to transfer money from a business account to a personal account as this transaction is an ‘income’. To find out more, check out the guide above.