Do I need a business bank account for Making Tax Digital?

Sole traders have never had a legal duty to use a business bank account. You can run a business through a personal account if the bank allows it in the account's terms, and many people do. But a business account can make it easier to manage money and keep personal spending separate from business spending.

With HMRC rolling out Making Tax Digital (MTD) to more and more people, is a business bank account now essential or does it simply help you stay organised?

Key takeaways

• You don’t need a business bank account to follow Making Tax Digital rules, but using one can make record-keeping much easier

• A business account linked to accounting software can track income and expenses, speeding up new quarterly updates to HMRC

• A personal account can work, but mixed spending increases the risk of making a mistake

What is Making Tax Digital for income tax?

Making Tax Digital (MTD) is HMRC’s new system for reporting self-employed or property income and expenses online. It replaces the current self-assessment process for people earning above a certain amount.

Instead of manual paper records and returns, you now need to keep digital records of your business income and costs. You then send summary updates to HMRC every three months using compatible accounting software. At the end of the tax year, you submit a final declaration to confirm your figures and make any adjustments.

MTD applies to sole traders and landlords with total business or property income above a set threshold. HMRC plans to roll it out in stages, starting in April 2026 for those earning £50,000 or more from self-employed income or property before moving onto those earning £30,000 or more from April 2027.

💡 Editor insight: 2 in 5 SMEs unprepared for Making Tax Digital as first filing deadline approaches

Do I need a business bank account for MTD?

The short answer is no. HMRC doesn’t legally require you to use a business bank account to follow MTD rules. You can still run your business through a personal account and stay compliant with MTD.

What matters is how you keep records and send your updates to HMRC. You must: 

• Keep digital records of income and expenses 

• Submit quarterly updates using MTD-compatible software

HMRC doesn’t check which type of bank account you use to meet these requirements.

However, just because it’s not a legal requirement doesn’t mean you should ignore the benefits. A business account makes MTD easier to manage by keeping business income and costs in one place, separate from your personal money.

It also helps linked accounting software track any business transactions and create accurate reports - reducing the risk of recording incorrect sums or missing payments when due.

How MTD works with your bank account

MTD doesn’t link straight to your bank account. It works through accounting software that pulls in your transactions and sends updates to HMRC.

Here’s how the process works in seven simple steps:

1. Choose MTD-compatible software

Use compatible accounting software (or bridging software if you’re using a spreadsheet) to keep digital records and send updates to HMRC.

2. Connect your bank account to the software

Most banks make it easy to link any accounting software to your account. The software then pulls in transactions automatically.

3. The software imports your income and spending

It lists money in and money out in one place, based on your bank activity.

4. Review and categorise transactions

You can label each item, so the software records it correctly. Examples might include:

• Income

• Travel costs

• Stock

5. The software creates your quarterly update

It turns your records into summary figures for the period. It doesn’t send your full bank statement.

6. The software submits the update to HMRC

You send updates through the software linked to your bank account.

7. Submit year-end figures to finalise your return

You confirm your totals and make any adjustments at the end of the tax year.

How a business bank account could help with MTD

Here’s how a business bank account can make your life easier when it comes to MTD requirements.

Keeps business and personal money separate

A business account handles only your business income and costs. This makes it easier to see what belongs where and means there’s no sorting through personal spending to find business transactions.

Speeds up quarterly updates

Business-only data makes it faster to review transactions and prepare quarterly updates, so you spend less time checking figures and fixing mistakes before submission.

Makes transaction tracking more accurate

You’re safe in the knowledge that your business account relates to business spending. When you link the account to accounting software, it can categorise transactions correctly, reducing the risk of misinterpreting payments.

Reduces the risk of missing income or expenses

A separate account makes it easier to spot payments in and out. This lowers the risk of leaving out income or forgetting to claim allowable expenses.

Creates a clearer audit trail

A business account is a simple record of business activity. This makes it easier to explain figures to an accountant or respond to questions from HMRC.

Helps with cash flow planning

A business account gives you a clearer view of how much money your business has available. This can help you plan for tax bills, quieter months and upcoming costs.

Makes software integration easier

Many business bank accounts connect directly to accounting software. This can save time because transactions flow into your records automatically, rather than relying on manual uploads.

Supports better tax planning

You can use a business account to set aside money for tax as you earn. This makes it easier to stay prepared for your final bill - though it's worth saying that MTD quarterly updates do not mean quarterly tax payments.

Makes accountant access simpler

Some business bank accounts and accounting platforms let you give your accountant secure access to the information they need. This can reduce back-and-forth and help them check your records more quickly.

Features to look for in an MTD-friendly bank account

If you plan to link your business account to accounting software, look for features that make record-keeping simple and reliable.

Key features to check include:

• Open banking feeds – This enables the accounting software to connect securely to your bank account and pull transactions automatically

• Software integrations – You want the account to work smoothly with software from providers such as Xero, QuickBooks or Sage

• Real-time or daily transaction syncing – Keeps records up to date without having to update manually

• Easy data export – Allows for CSV file or spreadsheet downloads if you need backups

• Multi-user access – Lets your accountant view transactions without sharing passwords

• Receipt and expense tagging – Helps match receipts to payments and label costs correctly

• Tax pots or savings spaces – Enables you to set aside money for tax or savings

Business bank accounts that work well with MTD software

Most business bank accounts now link to popular MTD-compatible accounting software.

High street and online bank examples include:

• Allica Bank

• Anna

• Barclays Business

• HSBC Business

• Monzo Business

• NatWest

• Revolut Business

• Starling Business

• Tide

Case study: Meet Ally and Gemma: the duo turning repair into a nationwide movement

Why using a personal account might cause problems

You can use a personal bank account for MTD if you wish, but it can create extra work and it may even put your personal account in jeopardy.

For a start, a personal account mixes business and personal spending. This makes it more difficult to spot which transactions belong where. You have to sort and label each transaction manually, which takes time and increases the risk of forgetting what’s what.

Mixed transactions can also confuse accounting software. The software may mix up payments or pull in personal spending that doesn’t belong in your business tax records.

Some banks also restrict business use on personal accounts. If a bank flags regular business payments (or the linking of accounting software for MTD purposes), it can freeze or close your personal account entirely.

A business bank account avoids these issues by keeping professional income and costs in one place and separate from your personal finances.