Business Bank Accounts: What You Need To Know

Whether you are starting out as a sole trader or setting up a limited company, one thing you cannot overlook is a bank account specifically for your business activity.

Many people who are new to business make the mistake of just putting their business transactions through their personal current account rather than through a business bank account.

The thinking is that because there are not many transactions, it isn’t worth the hassle of setting up a new bank account. However, having a separate bank account will make your life so much easier when it comes to working out your tax liability and managing your cashflow.

Do I need a business bank account as a sole trader?

As a sole trader, you technically only really need to open a separate personal bank account. However, most personal accounts come with the caveat that they are “not for business use”.

This is because they do not offer the same level of features and, unlike business accounts, they are often offered free of charge.

So, this means that even sole traders tend to need to open a business account.

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Do I need a business bank account as a limited company?

If you have a limited company then a business bank account is an absolute necessity since that is the only way you can open a bank account in the name of your company.

In fact, it is a legal requirement that a limited company has a business bank account, so your options really are limited.

The fees do vary, but on the whole, most of the high street banks offer a similar level of service for a similar fee. It’s simply a case of choosing which one you are most comfortable with.

Is it free to open a business bank account?

Yes, it is free to open a business bank account. However, most do come with some form of monthly or annual fee.

In many cases, monthly or annual fees are waived for a set amount of time after you open the account. This is primarily to help attract you as a customer, but it is also to help improve your cashflow as a new business.

You may still need to pay fees for certain services, such as cashing cheques or making payments. 

After any initial ‘free’ period is up, you can expect to pay between £5-£20 a month depending on the size of your business. There may also be additional fees for some services, too.

Keep in mind that any banking fees you pay will be deductible from your profits as a business, helping to reduce your tax liability. However, you should certainly be prepared to pay much more in banking fees than you’re likely to be used to on your personal current accounts!

Which bank is best for startups?

Historically, Barclays was considered very ‘startup-friendly’ and they prided themselves on doing a lot for small businesses.

However, most of the UK high-street banks now offer very good services for businesses. Some even include accounting software as part of your account fees, helping save you money.

For example, NatWest actually acquired FreeAgent in 2018 and include a free subscription to the software with all new business current accounts.

There are also modern online banks such as Tide. If you don’t need the ability to walk into a branch, they are certainly worth considering.

How to compare business accounts

Finding the best business current account for your needs can be a little tricky.

Most come with fairly standard features such as debit cards, online banking, apps, etc. Where they differ is usually in the pricing and the added extras they provide.

It’s best to start by working out exactly which services you are most likely to need. Do you do all your transactions online? You’ll want to look for accounts that have the lowest frees for electronic transactions.

If you cash a lot of cheques, you might want to compare the different fees for depositing paper cheques.

Don’t forget to factor the monthly fees in too and any savings you’ll make from included accounting software, etc.

Finally, don’t forget to factor in the size and expected turnover of your business and how that may impact the fees you pay, especially as you grow. 

While it’s possible to switch business accounts at any time, they process can be quite time-consuming and so it’s better to spend a little extra time now to ensure you make the right decision.

Are business banking apps safe to use?

While the security of your bank account is always extremely important, the nature of a business and the amount of money you’re likely to have going through it makes it even more important on business accounts.

The good news is that banking security in the online world has really improved over the last few years. 

From fingerprint recognition to card readers and even facial recognition, banking apps are now among the most secure apps you can download.

Of course, nothing is completely immune from being hacked, but technology means you can breathe much more easily and enjoy the extra convenience a banking app offers without too many concerns.

What do you need to open a business bank account?

Applying for a business bank account is not too different to applying for a personal bank account.

You will need all the same personal details for each director of business as you would need for a personal account, and in addition, you will need details of your business.

Recommended Application Method:

If you find the idea of completing application forms a little daunting then you will be pleased to hear there is a quicker and much easier way to apply. Many of the company formation agents such as 1st Formations offer ‘Fast Track’ business bank account applications.

If you are forming your company through them, you have the chance to add it during the formation process, and they complete 90% of the information for you.

The advantage of doing it this way is that not only is the application process much simpler and easy-to-follow (partly because most of the details needed will be automatically imported from Companies House for you), but applications done in this way also are given priority – hence the ‘FastTrack’ aspect.

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Once you have setup your business bank account, the next step will be to establish some basic bookkeeping procedures so that you can record transactions accurately and save yourself time when it comes to annual accounting and tax returns.

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