Business current accounts

A business bank account works like a personal bank account. You’ll need one if you set up a limited company but even for the self-employed, it offers a way for you to keep your business transactions separate from your own personal money.

This can help you manage your business cash flow more easily and calculate the tax you owe at the end of the year.

You’ll have a business bank account sort code and account number for making and processing transactions, and you’ll be able to pay in and draw out cash and cheques. Having a business bank account also makes it possible to apply for a business loan or a business credit card in the future.

Where a business bank account differs from a personal bank account is the fact that you will often have to pay a fee to use your business account and possibly individual transaction charges. A business bank account can cost several hundreds of pounds a year in fees.

Business bank accounts are available to sole traders, partnerships, companies, clubs, societies and charities.

Opening a business bank account for your company can offer benefits like:

• Have invoices paid directly into your business account
• Pay employees
• Set up direct debits and standing orders
• Sort your personal finances from your business finances quicker to help when it comes to filing your tax returns
• Separate your business expenses more easily
• Build up your business’s credit history
• Business banking manager support
• Some business accounts may offer rewards like cashback on your annual turnover
• Some business accounts may offer an overdraft facility
• Some accounts will offer a current account switch service for your business account – although terms and conditions may apply
• Some accounts will let you earn interest on your credit balance which will be tax-free up to your annual personal savings allowance
• Some accounts have phone app business banking allowing you to check balances and make payments from your phone

• Use your business account for all your business transactions: pay your employees, have invoices paid in, receive cash and electronic payments, pay in cash and cheques, draw money out and transfer money electronically, set up business direct debits and standing orders with your business account.
• Business banking fees: you may have to pay a transaction fee for cash, electronic and cheque payments that are paid both in and out of your business account. As a general rule, the more transactions you make on the account, the higher the charges are likely to be.

You may also have to pay a monthly or annual fee to use your business account – this covers the cost of the bank provider’s business banking services. Most UK business bank accounts come with an introductory offer such as free banking for 12 or 18 months.

Some business account providers might offer free business banking for an introductory period. You’ll then need to see how much you’ll end up paying once the introductory period is over. If a bank does offer free banking indefinitely then you’ll need to make sure you know what the limitations are with the amount you can pay into your account.

If you go over your agreed overdraft then you will most likely have to pay a fee.

• Business banking support: some banks have a dedicated small business advice team, while others offer a telephone helpline. Branch-based chains of advisers can be useful if you want face to face contact to discuss any issues that might affect your business, or discuss other business finance options.
• Digital-only banking or high street banking: you can decide whether to open a business account with your personal high street bank account provider, a different high street bank provider or, if you’re a sole trader or the owner of a limited company, you can also choose to open a business bank account with a digital-only bank.
• Comparing business bank accounts: when comparing business bank accounts, it’s a good idea to compare any fees you’d have to pay, the interest rate you can earn on credit, the overdraft rate offered and other features and limitations to help you find the best bank account for your business. The best business bank account for you will be influenced by factors such as the way you like to bank, the number of invoices you issue and pay, how many suppliers or clients you have.
• Business use only: you’ll need to use your account for business purposes only. You won’t be able to use your business account for personal banking.

You legally need a business bank account if you have a limited company. That’s because a limited company, or a Limited Liability Partnership, is a separate legal entity from yourself and so you need a separate business account.

You don’t legally need a business bank account as a sole trader (a self-employed person). This is because your business and personal income are treated as one by the tax office, so you can use your own personal bank account for your business transactions.

Partnerships, which are effectively two or more sole-traders, may also choose to operate through a joint personal account. Many sole traders and partnerships do choose to open a business bank account though, to help keep their business finances separate.

Having a small business account as a sole trader also makes it easier to deposit if you’re trading under a different name, for example. It can also give an accurate reading of how your business is doing and can provide detailed transactional data, if needed.

You can open a business bank account through a high street bank or a digital bank. You will either be able to open your business bank account online or in branch – this will depend on the type of bank and the account.

The type of documents and proof you need to open a business account will be influenced by the type of company you have. You’ll need to provide the bank with your business details and personal details for anybody included in the application as standard.

If you have a private limited company or a limited liability partnership then you’ll also need your company’s registered name and address, date of incorporation and company registration number when applying.

It’s a good idea to find out what documents and proof you’ll need to take to your bank meeting beforehand to help speed up the process.

If you have a bad credit history then you will likely find it more difficult to open a business bank account. This includes if you’ve been bankrupt in the past five years or you have a County Court Judgement (CCJ).

You might find it easier to open a business account with your current account provider. Some banks will offer foundation accounts for your business, designed for borrowers with a poor credit history.

Taking steps like paying back any credit you owe on time and making sure you’re registered on the electoral roll can help to improve your credit score, which can help increase your chances of being approved for a business account in the future.

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