Do I need a business bank account?

A business bank account is an effective way of keeping your business income separate from your personal finances. If you're wondering why your start-up needs a dedicated business bank account, we oultine the benefits of having one here, even if you aren’t legally obliged to do so.

Business bank accounts for sole traders

Sole traders and freelancers are not legally obliged to have a separate business bank account, you can therefore use a personal bank account to handle business and personal transactions. Alternatively, you may wish to have two personal bank accounts – one for your business and one for your own personal use.

Nevertheless, using a business bank account can be beneficial when operating as a sole trader for the following reasons:

• Your bank may state your personal bank account should not be used for business: Make sure you review the small print of your personal bank account. Most banks state that using a personal current account for business is forbidden.

• Simplify preparation of your self-assessment tax returns: To avoid the headache of separating your business and personal finances when preparing and submitting self-assessment tax returns, a separate business bank account can make it easier to determine business expenses and calculate your taxable profit.

• Build a credit score and history for your business: If you plan to apply for external finance for your business in the future, a business bank account is a good way of building a credit rating and history for the company. Banks will typically require a credit rating to lend to businesses.

What is the difference between a personal bank account and a business bank account?

In many ways, personal and business bank accounts are identical. Both allow cash and cheque handling, have overdraft options (on application) and provide debit cards for ATM withdrawals.

Having a business bank account can help enable you to get a business credit card and assist you in taking card payments from customers more easily. You can also set up standing orders and direct debits for business bank accounts, just like personal accounts.

The key differentiator is the cost of using a business bank account, a business bank account may charge a monthly fee, as well as further charges for administrative tasks such as banking cheques.

Limited companies must use a business bank account

If you decide to operate your new business as a limited company, you must have a business bank account in the company's name. A limited company is a separate legal entity and therefore owners must ring-fence all income and expenses in a business account.

There are business bank accounts for limited companies that don’t charge monthly fees and contain a range of digital money management tools that may help you run your business in a more organised fashion.

Reasons for opening a business bank account

Here are some of the tell-tale signs that you should consider upgrading from a personal bank account to a business bank account for your growing business:

1. You are processing an increasing number of business transactions.
2. You plan to accept card payments from clients.
3. It’s becoming increasingly hard to keep business expenses and income separate in your personal account.
4. You have decided to incorporate your business and become a limited company.
5. Your short-to-medium-term goal is to secure business finance.

How to open a business bank account

First and foremost, you must decide whether you require a business bank account with a bank that has high-street branches. If you aren’t a business that regularly attends a branch, for example to pay in cheques, you may be happy with an exclusively digital business bank account.

Applying for a business bank account can take several weeks. Your chosen bank will undertake several identity and security checks to verify and validate your new account. You will probably be asked to provide business documents, including business address and proof of incorporation (if you are a company).

How we can help

Running your own business can be challenging at times and TaxAssist Accountants can be here to support you every step of the way. If your need support with your accounting, bookkeeping, payroll or tax contact us today on 01463 242 667 or complete our online enquiry form.

Date published 27 May 2021 | Last updated 13 Aug 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.