Why you need a business bank account and how to choose one

Do you need a business bank account? 

If you are a sole trader, you are not legally required to have a separate business account and you can usually use your personal bank account to manage your business and non-business finances. Bear in mind though that your bank’s terms and conditions may mean that you can’t use a personal bank account for business transactions. 

If you run a limited company, a separate business bank account is not a legal requirement, but it is recommended. As a limited company is a separate legal entity, the money belongs to the business rather than you and it needs to be kept separate. The bank's terms and conditions may also require you to open a business bank account if you are using it for a limited company. 

Advantages of having a business bank account for sole traders 

Even though you don’t legally need one if you’re self-employed, there are advantages to opening a business bank account. 

Better manage your finances 

To reduce your tax bill, you can deduct allowable expenses. If you only have a personal account which mixes up your business and personal costs it can make it harder to accurately calculate the business expenses you are entitled to claim. This means you might miss out on tax savings when submitting your self assessment tax return.   

Having a business bank account also makes it easier to manage your business finances more generally. You can better track your business income and make more accurate business planning decisions.  

Finally, HM Revenue & Customs may need to look at your business finances as part of a tax investigation. A separate business bank account will make this easier and less intrusive.  

Build a business credit rating 

Opening a business bank account means you can start to build a business credit rating. This is important when accessing funding.  

If you are a sole trader with only a personal bank account, a lender will look at your personal credit history. If you have a business bank account, you can also have one for your business.  

Be careful to manage your finances effectively. Spending money beyond an agreed overdraft or defaulting on loan payments can negatively impact on your credit rating.  

Look more professional 

Having a business bank account helps to make your business look more professional and trustworthy. Clients and customers may be reluctant to make payments into a personal account. 

Beneficial extra features 

Although you may have to pay fees that don’t apply with personal accounts, many business bank accounts come with additional features that are useful to your business. This includes invoicing tools, integration with accounting software and access to business advisers. 

How to choose a business bank account   

To find the most appropriate bank account for your business you should spend time doing detailed research. You may want to open a business account with the same bank you already have a personal account with or you might want to go with a different company.  

You can open several business bank accounts to meet different financial requirements but that can be complicated and make it harder to build an effective relationship with your bank.  

There are several traditional high street banks as well as modern ‘challenger’ banks which operate only online and via mobile apps.  

Ask other business owners for recommendations, search online, visit bank websites and use business bank account comparison services.  

You can also use the results of a regular independent survey of customers which the 15 largest business current account providers in Great Britain and five largest business current account providers in Northern Ireland are required to take part in.  

The research ranks banks on areas including overall service quality, online banking, overdrafts and loans. You can see the latest results here. At TaxAssist Accountants we work with Starling Bank, while you can find details of UK banks on the UK Finance website. 

During your research you should compare costs and the provision of services such as: 

• online, mobile and telephone banking 
• availability of in branch banking 
• debit and credit cards 
• loan and overdraft facilities 
• interest rates and overdraft charges 
• level of monthly fees  
• foreign currency services 
• additional account charges such as for cheques and statements 
• additional services such as invoicing tools, integration with accounting software and business advice 

How to open a business bank account  

Once you’ve decided which bank to go with, you may need to arrange a physical meeting to set up the account or the bank might let you do it online. 

It usually takes between one and four weeks to open a business account.  

The bank will carry out several checks and you’ll have to provide various business documents. As well as proof of ID and address using documents such as a passport, driving licence and utility bills, the bank may require: 

• your business name, address, contact details and business start date  
• details of the activities your business carries out 
• details of the amount of funds you’ve already invested in your business 
• an estimate of the amount of money you intend to pay into your account 
• Companies House registration number (for limited companies and partnerships) 
• certificate of incorporation and articles of association (for limited companies) 
• number of employees you have and their employment status 
• your business plan  
• expected turnover and cash flow forecasts  

Before opening your new business bank account, you should work with your accountant to refine your business plan and financial forecasts to ensure the bank has everything it needs to approve your application.  

Date published 4 Jan 2023 | Last updated 20 Mar 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.