Whether you’re legally obliged to have a business bank account depends on your business structure, but having a business bank account can be a good idea for most businesses, even freelancers and sole traders.
When you’re considering whether to open a dedicated business account, the first thing is to understand if you’re legally obliged to do so. This depends on whether you’re operating as a sole trader or setting up a limited company.
If you’re not sure which business structure to pick, check out our article on the difference between a sole trader and a limited company.
Download your free guide to the different situations in which you might need a business bank account. Get access to expert hints and tips in the click of a few buttons.
As a sole trader in the UK, you don’t have to have a business bank account, but you might choose to.
Legally, you can use your personal bank account for both business and non-business transactions or you can set up a second personal bank account to use for your business.
However, there are several reasons that setting up a business account may still be a good idea. These are five reasons why you might consider opening one.
It’s likely that somewhere in the small print of your personal bank account documents it says that your account should be for personal use only.
If your bank realises that you’re using the account for your business – particularly if there’s a lot of money passing through or you’re handling a lot of cash and cheques – they may force you to close your account and tell you to open a business account.
When you complete your tax return, you need to tell HMRC how much money your business has made. You can subtract certain allowable expenses (travel costs and office costs, for example) to calculate your taxable profit.
If your personal costs are mixed up with your business costs because you use one bank account for both, it can be difficult to make these calculations accurately.
Not only does having a business bank account help with reporting to HMRC, it also makes it much simpler for you to manage your business budget and forecasts.
Sorting out which expenses are personal and which are for your business can take time, so having a separate bank account can help you manage your business finance more efficiently.
Having an account in your business name can help you if you need to apply for a business loan in the future. It helps to build up a credit history for your business, which many banks will look for when considering if you’re eligible for business finance.
Having a dedicated bank account can make your business appear more professional, as clients can make payments to an account held in your business name rather than your own name. Some clients don’t like making payments into personal accounts.
If you’ve set up a limited company in the UK you need to have a business bank account as your business is legally a separate entity. You shouldn’t be using a personal account for any of your business expenses.
Like a personal bank account, a business bank account can offer cash and cheque handling, a debit card, and an overdraft. As with your personal account, you’ll be able to set up direct debits and standing orders. Having a business account also paves the way for your business to borrow money, get a business credit card, and take card payments from customers.
The main difference between a personal and business bank account is that you’ll usually pay fees for a business account. Most business bank accounts charge a monthly fee (starting at around £5 to £8) and then additional fees for certain transactions like depositing cheques. However, many banks offer an initial fee-free period of one to two years when you first open the account.
As we’ve mentioned above, if your small business is a limited company you’ll need to have a business account. If not, there are a few factors you might want to consider:
When choosing your bank, you’ll first want to think about whether you want an account that has physical branches or if you’re happy with an online-only bank account.
Once you’ve done your research, opening a business account online can take between one and four weeks while the bank carries out a range of checks. You’ll just need a few personal details and business documents to get started.
Check out our article on the the best business bank accounts for a comparison of accounts offered by some of the major banks, including information about the fee-free periods.
Some banks offer specific business bank accounts for sole traders and start-ups, giving you the benefit of separating your finances but often with a lower monthly fee that’s tailored to the services you need.
If you don’t yet have one, you may need to open a business bank account as your company grows. For example:
This article does not constitute legal or financial advice. Please speak to your bank or seek professional help if you’re not sure whether you need a business bank account.
What’s your experience of business banking? Tell us in the comments.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
6th Floor99 Gresham StreetLondonEC2V 7NG
Sol House29 St Katherine's StreetNorthamptonNN1 2QZ
© Copyright 2021 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.