Finding the best bank account for your business
Business bank accounts are useful for many. Learn about how they work, why you would need one, and how to find the best deal.
What is a business bank account?
It’s a type of account held with a bank, building society or e-money issuer for making financial transactions related to business. They’re used by sole traders and company owners to manage money generated by their business.
Business bank accounts help you manage and keep track of things like
- Income and outgoings
- Business expenses
- Issuing invoices
- Employee payroll and salaries
- Money owed by debtors
- Creditors you owe
- Tax reporting
Not all business bank accounts offer the same services, so whether you need a business current account for everyday expenses or a full wrap-around provision, you’ll find one to suit your company’s financial needs.
What do you get with a business bank account?
You’ll get all the banking services you’d expect from a personal account, but depending on the account you choose, you’ll also get other financial services thrown in, like accounting software or tax assistance.
With a business bank account, you’ll typically get:-
- Contactless debit card for payments and ATM withdrawals
- Mobile app to manage your money
- Online account or telephone banking facilities
- Direct debit and standing order facilities
- An overdraft facility
- Apple & Google Pay
Business-specific features may include
- Accounting software like Xero, FreeAgent or QuickBooks
- Invoicing services
- Multi-user access
- Foreign currency transactions
- Payroll management
- Receive customer payments by Direct Debit
- Receive customer payment by debit or credit card
- Tax management
- Business credit checking
Are business bank accounts free?
Some business bank accounts are free, but you’ll be charged fees for various transactions. Other business bank accounts may offer a free introductory period and charge a monthly fee thereafter.
Typical business banking costs
Banking costs you can expect to pay are:
1. Monthly fees between £5 and £12.50 per month, which may scale with your business.
2. Fees and charges based on a percentage of the transaction or a flat fee. The sort of transactions that may attract a charge are:
- Cash withdrawals
- Cash deposits
- Bank transfers
- Sending money abroad
- Receiving payments
- Writing a cheque
Transaction charges are rarely highlighted and are often hidden in the small print, so seek out the tariff or fees sheet before you apply for a business account. A cheap business account is not always the best business account once you add up the charges.
Who offers business bank accounts in the UK?
Most of the major high street banks offer business bank accounts. This means you can use branch facilities for paying in money or ironing out problems. If you’re already with a traditional bank, you may prefer to stick with your existing bank when you open a business account.
However, there’s a new breed of online business banks that offer a range of integrated services, more flexibility and app-based mobile banking. They’re often cheaper, and you can scale services to fit your business.
Popular online business banking providers include:
- Starling Bank
- Virgin Money
Are companies required to have a bank account?
It depends. If you own a limited company and are registered on Companies House, you’re legally required to have a dedicated business current account. It has to be legally distinct and managed separately from your personal finances.
However, business bank accounts aren’t compulsory if you’re either a sole trader or in a partnership. If you’re freelancing or contracting, you’re classed as a sole trader.
So, although sole traders and partners aren’t required by law to have a business account, it’s a sensible option to get one if you have lots of income and expenditure to track. It will help you keep control of your finances and make it easier to complete your tax returns.
What are the pros and cons of business bank accounts?
Whether you’re a sole trader or the director of a limited company, there are many advantages to opening a business bank account. There are also a couple of disadvantages to bear in mind, so it’s worth weighing up the pros and cons before you apply.
- Helps to keep track of business income and expenditure
- You could benefit from integrated services like invoicing or payroll
- It allows for multiple people to access
- Foreign currency transactions are easier
- You can receive payments by Direct Debit or credit card
- It could speed up the tax return process
- Helps you spot identify problems more easily or clear up tax issues
- Builds your business credit rating for future business loans or credit lines
- It’s more expensive than a personal current account
- There are more transaction fees and charges
- It’s yet another layer of admin, passwords and paperwork
The bottom line is a business bank account will help you stay in control of the money you make and keep your business finances in check.
How to open a business bank account
Opening a business bank account is very similar to opening a personal current account, although the documentation you need depends on whether you apply for an account with a traditional bank or choose an online business bank account.
It will also take more time if you’re setting up a new business bank account as a limited company rather than as a sole trader.
What is needed to open a business bank account?
You’ll need to provide documents as proof of identity and address. In addition, if you are applying for a business account with a high street bank, you may have to provide evidence of your Companies House registration, annual turnover and go through a credit check.
Check with each banking provider before you start the application process, and make sure you have the following information to hand before you sign up.
- Proof of identification for all company directors such as a passport or driver’s licence
- Proof of address such as a recent utility bill or bank statement
- Company details like the registered address, contact details and the Companies House registration if applicable.
- You may also need to provide your expected yearly turnover and banking history, and evidence you’re authorised to run the account.
In many cases, you or the business may undergo a credit check. However, this isn’t always a requirement for digital banking providers like Tide or Monese.
Can you open a business bank account online?
Yes, most banks allow you to open a business bank account online rather than in person or over the telephone.
Many digital banking providers offer online business banking only, so the process is very quick and easy. You’ll likely be identity checked to comply with money laundering rules, but you can still be up and running in less than ten minutes.
Can you open a business account with bad credit?
Yes, you can with certain banking providers, although you’re unlikely to be accepted by one of the high street banks, especially if you have been declared bankrupt in the past five years.
Many of the online digital banks or app-based providers will accept you without running a credit check, and digital providers like Cashplus offer credit builder services that can help you repair bad credit as you bank.
How to choose the best business bank account
The best business bank account is the one that most closely fits your business needs and helps you manage your finances with minimum costs.
Whether you’re a sole trader or start-up opening an account for the first time, or a small business director planning to switch small business accounts, it’s vital to take your time and compare accounts.
Think carefully about which bank account best suits your business finances and which services you’re likely to need.
The main purpose of the account: Is it for receiving payments and purchasing, or do you need to set up lots of direct debits, make foreign currency transfers or pay in cheques? Think about the services you’ll most likely use and check out the fee structures for each bank account. All banks have a web page and leaflet outlining their charges in full, so make sure you read the small print.
Account fees and transaction charges: Weigh up whether it’s best to pay a higher monthly account fee and get some free transactions or pick a free account and get charged for individual transactions. Also, whether it’s best to pay flat fees or a percentage charge per transaction.
How you manage your money: If you prefer to bank online or use mobile apps, one of the newer providers may suit you. If you’re more comfortable phone banking or visiting a branch, opt for a traditional high street bank.
Do you need regular or easy access to a branch network? If so, choose a high street bank with a branch near you, and opt for the closest or easiest to get to.
Your preferred payment method: If you prefer mobile payments or contactless, opt for a bank that offers free Google or Apple Pay and debit/credit card payments. If you like to use cash in your business, go for a bank that offers free ATM withdrawals.
Perks or discounts: Some business accounts offer perks like cashback or introductory offers on accounting software. Only opt for an account that offers incentives if you think your business would benefit from it.
Will you need an overdraft? If you think it’s likely you’ll need credit facilities, consider choosing a bank that offers the cheapest overdraft fee and interest charges. Some digital banks and e-money issuers don’t offer overdrafts at all.
Is it FSCS protected? If you’re likely to be holding large amounts of money in your business bank account, then it’s advisable to choose a bank that has FSCS protection. Some digital banks and e-money issuers don’t, although they do comply with strict e-money regulations.
Business Bank Accounts FAQs
Can I open more than one business bank account?
Yes, as long as you meet your provider requirements, you can open as many business bank accounts as you like. Having more than one business account can be a useful way to separate your business finances and keep track of your business spending.
Can I use the Current Account Switch Service (CASS) to switch business bank accounts?
Yes, as long as your provider displays the Current Account Switch Guarantee logo you can use the service, however, there are some conditions to this.
- Your company will need to have an annual turnover that doesn’t exceed £6.5 million and you don’t employ more than 50 people.
- If you’re a small trust with a net asset value of less than £6.5 million you can also use the service.
If you’re unsure whether you qualify for the Current Account Switch Service, the best thing to do is check with your new provider.
How long does it take to apply for a business bank account?
Applying for a business bank account is usually a quick process, however, it can often take up to four weeks for your provider to process the application and run all the necessary checks.
What is FSCS protection?
FSCS stands for the Financial Services Compensation Scheme. It’s a free service that allows you to claim compensation if the provider you use has gone out of business and can’t pay your claim.
Some business bank accounts won’t be covered by the FSCS. If you’re concerned about this or you’re likely to hold large sums of money in your business account, it’s important to choose one that comes with FSCS protection.
Can I set up a joint business bank account?
Yes, the process of opening a joint business bank account is similar to the process of opening an individual account. You’ll need to provide proof of identity and other supporting documents for both account holders. If one of you has a poor credit rating, it makes sense if the person with the best credit rating opens the account.