Learn why opening a separate business bank account is crucial for your UK business and your financial sanity.
When you start a business, it always helps to try and simplify things. You might set up an online calendar so clients can easily book meetings with you, or outsource administrative tasks by hiring a virtual assistant (often known as a VA).
But when it comes to simplifying your money and business expenses, having a business bank account is vital for success. Keeping your business funds apart from your personal account in a separate business account will make it easier and more straightforward to manage your business as it grows.
Here’s everything you need to know about opening a business bank account. We cover what the law says, the information you’ll need, and the benefits of having a separate account for your business income. But first, let’s cover what a business bank account actually is.
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What Is a Business Bank Account?
A business bank account is an account you use solely for business purposes. Accounts can range from having basic money-in, money-out functionality to offering services that help you run your business, such as:
- Issuing invoices
- Running payroll, if you employ staff
- Managing your accounting and tax return
Whatever you need an account for, there will be one out there that can help you.
In some circumstances, there’s no reason why you can’t use your personal bank account for business reasons. But having a separate bank account for business transactions makes it easier to separate your personal and business records, and organise your books.
Do I Need a Business Bank Account?
Having a business bank account is a legal requirement in some cases.
If you’re running a limited company and are registered with Companies House, you’re legally obliged to have a separate bank account for your business transactions. Your business is a separate legal entity from you, so you shouldn’t be using your personal bank account for business expenses.
There’s no legal obligation to have a business bank account if you’re a sole trader. You can carry out all your transactions from your personal account. But we recommend opening a business bank account anyway, as separating your work and personal finances makes staying on top of your books a lot easier. That’s something you’ll be happy about when it’s time to complete your self-assessment tax return.
And some business bank accounts don’t come with any monthly fees—more on this later.
5 Reasons to Open a Business Bank Account
1. Save Time
Freelance business owners can spend a lot of time separating business expenses from their personal bank accounts. Using a separate business account dedicated to these transactions will help you claim this time back, so you can use it to do other important things like find new clients and grow your business.
2. Make Admin Easier
Keeping your business income and expenses separate from your personal account will make completing your tax return a lot easier. You won’t need to spend time going through personal bank statements, trying to remember what was a business purchase. Instead, you’ll have all of this information in a separate account. This is handy for staying on top of your books.
3. Build a Credit Rating
If you ever decide to apply for a business loan or credit card, you’ll need a decent credit rating. Having a business bank account means you can start building up a credit history for your business. When this is well-managed, applying for business products will become much easier.
4. Avoid Breaking Any Terms and Conditions
When you read your bank’s terms and conditions, you may see you’re not allowed to use your personal bank account for business purposes. Receiving small amounts of money via bank transfer might be okay. But carrying out lots of transactions may prompt your bank to look into your activity. Avoid the risk of breaking any rules by opening a separate business account.
5. Look Professional
With a business bank account, your customers and suppliers can make and receive payments from an account with your business’ name on it. Using a personal account for this kind of activity won’t necessarily lose you clients. But having a dedicated business account shows clients and suppliers you’re serious about what you do.
How to Choose an Account
Some banks charge a monthly or annual fee for you to use their business bank accounts. You should expect most high street banks to charge a fee for their accounts. But many online challenger banks don’t charge a fee.
It’s worth finding what interest your money can earn in a business bank account. Many business current accounts come with interest rates of 0% annual equivalent rate (AER), but business savings accounts are more likely to come with a small amount of annual interest.
Most banks have an internet banking feature. But it’s worth checking out reviews on how well their websites and apps work if online banking is important to you. Many challenger banks operate online-only and require you to bank your cheques at the post office.
Take a look around at what introductory offers business banks have. You may find something that suits your particular circumstances. It could also be an opportunity for you to get a feel for how your bank operates.
Are you someone who prefers to speak to banking staff in-person, and pay-in and take out money this way? Then you may want to consider choosing a provider with a high street presence. Many challenger banks don’t have branches you can visit.
What Information Do I Need to Open an Account?
The information that you’ll need to open your account depends on your business structure. If you’re a sole trader, you’ll need to share a photo ID—such as your driving licence or passport—and proof of address. A utility bill or mortgage statement should do the trick.
If you’re a limited company, you’ll need a photo ID and proof of address too. You’ll also need your company’s registration details from Companies House, plus your tax and VAT registration information.
Different bank account providers may have their own requirements, so it’s always worth checking what information you’ll need to provide with them.
How Long Does It Take to Open an Account?
How long it takes to get your business account up and running will depend on the bank and type of account. But typically, it can take up to 4 weeks for all of the essential checks to be carried out. For sole traders, this process can be faster as there aren’t as many things that need to be checked out.
Our Final Thoughts on Business Bank Accounts
A business bank account is an important part of establishing yourself as a business. When you take the time to set one up properly, it will save you a lot of headaches as your business grows. And as you grow, it’s essential to build proper legal and financial foundations. Other ways you can do this include creating custom templates for things like quotes and invoices.
Opening a separate business bank account will help you to keep your books organised, and make sure your business and personal lives have a healthy separation. Having a business bank account will also help improve your business’ credit rating, which will benefit you if you decide to apply for a business loan.