Business current accounts

Do I need a business bank account?

A business bank account is a legal necessity if you have a limited company – but it’s not a must for sole traders. 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.

What do business bank accounts offer?

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

The most basic business accounts consist of a chequebook and paying in book, but most now come with a credit card or debit card and an online banking portal.

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, or to hold pension funds and client money.

Sole trader bank account

As a sole trader, your business and personal income are treated as one in the eyes of the tax office, so you can use your own personal account. However, many sole traders choose to open a business bank account to simply keep their 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.

What to look out for in business banking

The best business banking accounts, including small business accounts and sole trader accounts, will have great features, but there are some things to look out for too:

• 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 of business bank accounts

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 business bank 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, or discuss other business finance options.

Find the best business bank account

When comparing the best business bank accounts, it’s important to take into consideration things such as charges, ways of managing the account, limits on transactions and other factors outlined above.

The best business bank account for you will depend entirely on individual factors such as the way you like to bank, the number of invoices you issue and pay, how many suppliers or clients you have, and much more.

You may prefer to bank with an established high street bank that you trust, or you may want to think about a digital-only bank. But regardless of the type of bank you choose, make sure you read the small print before applying to open any business account.

If you’re considering one of the business accounts listed above, make sure you read the ‘great for’ and ‘be aware’ points to get an honest, transparent understanding of the advantages and limitations of each one. Please note that the above accounts are only some of the options available to you – we don’t show every single business account on the market, because not every bank wants to be featured. Find out more about how we work.