Separating business and private money as a sole trader

Is a business account required for a sole trader?

No. With a sole trader business you personally own your business. The law does not require a separate account. A bv or other legal entity does need its own account, because there the business is a person of its own.

Do check the terms of your bank. They often say that you may not use a private account for business. Read them before you have invoices paid into your private account.

Why does a separate business account help?

• Overview. One statement shows only business payments. You see at once what comes in and what goes out.
• Less work. You do not have to cross out every grocery run and every subscription for your VAT return (btw-aangifte).
• An inspection goes faster. The Belastingdienst or your accountant does not have to search for which payment was for business.
• Your client sees your business name with the payment, not your own name.

What are private withdrawals and private deposits?

As a sole trader you get no salary. You take money out of your business for your own life. That is called a private withdrawal (priveopname or priveonttrekking). The other way round, you can put private money into your business. That is a private deposit (privestorting).

The key point: a private withdrawal is not a cost item and a private deposit is not turnover. Your profit does not change because of them. So record them separately, so they do not end up in your costs or income by accident. If you take goods or services from your business for private use, count them at fair market value.

An example with figures

Lotte is a photographer. In October she receives €4,840.00 in her business account: €4,000.00 turnover plus €840.00 VAT. She pays €350.00 in business costs. She moves €2,500.00 to her private account for rent and groceries.

She pays the €840.00 VAT with her VAT return. The €2,500.00 she withdraws does not lower her profit. She pays tax on the profit, not on what she withdraws. So leave enough in the business account for VAT and income tax. A provisional assessment helps you spread the income tax over the year.

How do you handle mixed costs?

Some spending is partly for business and partly private. Think of a phone subscription, internet at home, or a laptop you also use privately. Only the business part is a cost item. You may also deduct VAT only on the business part.

1. Estimate how much you use something for business, for example 70%.
2. Write down how you reached that percentage, so you can explain it later.
3. Record only that part as costs and deduct VAT only on that part.
4. If you pay the whole bill from the business, record the private part as a private withdrawal.

Some costs have their own rules. Business dinners are only partly deductible: read business dinners and representation costs. If you drive for business in your private car, you work with a mileage allowance.

What does the Belastingdienst expect from your records?

Your records must show which income and spending is for business. Every business expense needs a receipt or invoice. You keep those for seven years. If everything runs through one account, you must be able to explain for every payment whether it was business or private. With a separate account you show that at a glance.

Note. If you still pay for something business with your private card, keep the receipt and record it as a private deposit. If you pay something private from the business account, record it as a private withdrawal.