Research and reports
Taking care of your finances is an essential part of running a business, from understanding how business banking works to choosing the best account for your needs.
More than half (51 per cent) of small to medium-sized enterprises are considering switching their main bank or banking facilities provider in 2023, according to review site Smart Money People. If you're looking to shop around, our guide is a good starting point.
Read on to find out more about opening a bank account for your business, from legal and tax considerations to key features from high street and challenger banks.
Whether you’re legally obliged to have a business bank account depends on your business structure. Having a business bank account can be a good idea for most businesses, even freelancers and sole traders.
The main difference between personal and business bank accounts is that business accounts usually charge monthly fees, plus a range of fees for certain transactions. Lots of banks usually offer an initial fee-free period before charging, so be sure to shop around before choosing one.
Ultimately, a business account will usually be the best option for your business as it lets you keep your finances separate.
Many banks offer features that personal accounts don’t have access to, including:
Read more: The best business savings accounts revealed
It depends on whether you’re operating as a sole trader or setting up a limited company.
As a sole trader, you’re not required by law to have a business bank account. 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.
As a limited company is a separate legal entity, it needs to have its own business bank account.
If you’re not sure which business structure to pick, check out the difference between a sole trader and a limited company.
Even if you’re not legally required to have a business bank account, there are a number of reasons why setting one up is a good idea.
Some banks offer a specific business sole trader account. This gives you the benefit of separating your finances, but often with a lower monthly fee that’s tailored to the services you need.
Here are five reasons why you might consider opening one as a sole trader.
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), they may force you to close your account and 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, it can be difficult to make these calculations accurately.
Sorting out which expenses are personal and which are for your business takes time, so having separate bank accounts helps you manage your finances 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.
It’s important to bear in mind that some clients don’t like making payments into personal accounts.
If you’ve set up a limited company you’re required by law to have a business bank account, as your business is legally a separate entity.
You shouldn’t be using a personal account for business.
Beyond the legalities and your bank’s terms and conditions, think about these questions:
Do you have employees, or plan to in the near future? If you’re a sole trader managing your own payroll accounting, this can become very complicated without a separate account.
Do you need to apply for a loan? While not essential, having a business account might help if you want to apply for business loans and other forms of finance.
Do you want expert business support? Many banks have separate departments that manage services for businesses. By using a personal account, you’ll be missing out.
You might need a business account that accommodates your growth plans. For example if:
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. If you go completely digital, opening a business account can be a lot quicker.
This is the information that you’ll usually need to open a business bank account:
You may also need to give details about your business:
Once you’ve decided you need a business account, you’ll need to research which bank offers the best account for the needs of your business.
Consumer insight consultancy BVA BDRC conducts a regular independent survey for the Competition and Markets Authority (CMA). In this survey, people with a business bank account are asked how likely they are to recommend their provider.
The survey of 18,000 small business banking customers ranks 15 banks, and was carried out between July 2022 and June 2023.
We’ve used the latest data to list the best business banks, allowing you to compare the business accounts offered by the top providers.
Small businesses voted across five categories in the CMA survey:
The best business banks based on overall service quality are:
Monzo, Starling Bank, Handelsbanken, Tide, and Metro Bank make up the top five banks.
Ten other banks round out the rest of the ranking:
The best business banks based on online and mobile banking services:
The top five banks for this category are Monzo, Starling Bank, Tide, Lloyds Bank, and Natwest.
Here’s where the other banks placed:
The best business banks based on overdraft and loan services:
Top of the ranking in this category is Handelsbanken, followed by LLoyds Bank, Natwest, Metro Bank, and HSBC UK.
Here are the results for the remaining six banks:
*Starling Bank, Tide, and The Co-operative Bank weren't included in this category due to small sample sizes, while Monzo wasn’t included because it didn't offer overdraft and loan services for the full duration of the survey period
The best business banks based on relationship and account management:
For the relationship and account management category, the top five comprises Handelsbanken, Monzo, Tide, Starling Bank, and Metro Bank.
This is how the rest of the banks fared:
The best business banks based on service in branches and business centres:
Leading in this category is Metro Bank, followed by Handelsbanken, Lloyds Bank, Natwest, and then Bank of Scotland.
Here's how the other seven banks ranked:
*Starling Bank, Monzo, and Tide weren't included in this category because they don't offer in-branch services
Here are more details on the products themselves, letting you compare business bank accounts from the top providers.
Challenger bank Monzo topped the rankings for overall service quality and online banking. This is only the second time Monzo has entered the survey.
Monzo Business Banking starts with no monthly fees or UK transfer charges and account holders get access to free 24/7 UK support. A paid-for account is £5 a month and includes extra benefits, including invoicing, tax pots, and integrated accounting.
There are two business account options to choose from: "Pro" and "Lite".
Accounts are available to sole traders or directors of a registered limited company by shares based in the UK. Certain business types aren’t supported at the moment, including partnerships, charities and community interest companies.
Other features include FSCS protection, instant notifications when you pay or get paid, and savings pots that earn you interest.
Handelsbanken came top in the survey for relationship management and overdraft services. It also came second for in-branch services and third for overall service quality.
It calls itself a relationship bank, where each branch works as a local business. Handelsbanken say this helps them better understand their customers and the community.
The bank offers a direct line to an account manager and team at your local branch, as well as current accounts in a range of currencies, and overdrafts (subject to status).
There aren’t any details about fees on their website, so you’ll need to get in touch with your local branch to find out what they might charge your business.
Challenger bank Starling came second in the rankings for overall service quality and online banking.
Starling Bank business account holders pay no monthly fees or UK payment charges and get access to free 24/7 UK support.
The account is available to all business types and sizes, offering benefits including integration with a range of software solutions, FSCS protection, and free withdrawals in the UK and abroad.
Starling’s business customers can also pay for extra services, such as:
Metro Bank came fifth for overall service quality, but top for service in branches and business centres.
Its USP is that its branches are open outside of usual working hours, seven days a week.
To open a business bank account with Metro Bank, you need to have an annual turnover of less than £2 million.
When it comes to fees, there’s no monthly charge for daily balances above £6,000. If your daily balance ends at below £6,000 in the month, you'll pay the monthly fee of £6.
You'll also get 30 free UK transactions each month, but if you exceed this limit, a fee kicks in at 30p for each transaction (balances below £6,000 don’t get the free transactions).
Barclays, which came 10th in the overall rankings and sixth for mobile banking services, has specialised products for businesses of different sizes.
A “challenger” bank is usually a smaller retail bank, set up with the aim of competing with large, long-established national banks.
According to a survey by Smart Money People, over half (54 per cent) of SMEs planning to switch banks in 2023 will move to a challenger bank or fintech provider.
And it’s clear from the CMA data that challenger, digital banks, and multi-currency accounts are becoming increasingly popular with businesses.
Monzo topped the overall rankings for the first time, while Starling Bank and Tide also ranked highly.
There’s also been a rise in the number of sustainable banks, such as Triodos, which only finances projects and organisations that have a positive impact on society, culture, and the environment.
Whichever bank you choose, it’s important to research all of your options carefully and decide what’s best for you. Please only use this article as a guide, as part of your research.
Do you have any unanswered questions about business bank accounts? Let us know in the comments below.
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Conor Shilling is a Copywriter at Simply Business with over two years’ experience in the insurance industry. A trained journalist, Conor has worked as a professional writer for 10 years. His previous experience includes writing for several leading online property trade publications. Conor specialises in the buy-to-let market, landlords, and small business finance.
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