Business current accounts

What is a business bank account?

A business current account works in a similar way to a conventional bank account, but enables you to keep your business transactions separate from your own money. This makes life much easier when it comes to managing cash flow and calculating your tax liability at the end of the year.

Anyone who has started up as a limited company or partnership must have a business bank account, while it is only recommended for small businesses. The most basic business accounts consist of a chequebook and paying in book.

If you’re a sole trader you can use your own personal account, but many people still prefer to set up a separate small business bank account. Business banking is also available for charities and clubs, pension funds and client's money.

What to watch out for

• Don’t automatically open a business account with your existing bank, as it might not offer good value for money.
• The best small business bank accounts will offer you low charges and decent rates of interest when you are in credit
• If you think you’ll mainly be making payments electronically, go for an account that offers free or low-cost electronic transactions. Alternatively, if you think you'll be using a lot of cheques, look for low charges on paper transactions
• Look for an account that provides online business banking, so that you can check the status of your account day or night
• Remember that you will need to provide various documents in order to open your account, like the details of your company, possibly including a business plan
• You’ll need your Certificate of Incorporation if you have set up as a limited company, as well as documents proving your identity such as a passport and driver’s licence
• If you have a history of bad credit, opening a business account is likely to prove more difficult

Charges on business bank accounts

Most UK business bank accounts come with an introductory offer such as free banking for 12 or 18 months. While these are tempting, always make sure you know how much you will end up paying once the introductory period is over.

As a general rule, the more transactions you make on the account, the higher the charges are likely to be.

Some business current accounts require a regular monthly or quarterly standing charge. This will typically cost you around £15 to £20 per quarter, but a there are plenty of accounts that don’t charge this fee at all.

Make sure you read the small print carefully if you go for a business current account that offers free banking indefinitely. These usually only let you pay in a set maximum each month and a limited number of cheques, which would be no good if your income is going to vary dramatically from one month to the next.

Extra benefits for business

Some banks have a dedicated small business advice team, while others offer a telephone helpline, so check to see what is on offer when comparing accounts.

Branch-based chains of advisers can be useful if you want face to face contact to discuss any issues that might affect your business.

Find out more about your business finance options.