Opening a Business Bank Account – How and why you should do it

You are here:
< All Topics

Running a business requires certain skills to ensure smooth and successful operations. Effective time management and organisational skills are some of them. These are not only helpful in running a business, but are also useful when managing business bank accounts.

Generally speaking, it is safe to say that sole traders can use one bank account when managing expenses for both business and personal transactions. This is because their business involves less intervention from other people and, perhaps, less complicated financial transactions. However, when the business starts to flourish and time seems to be cut short, catching up with expenses and bank statements may become overwhelming, especially when it’s time to submit one’s Self-Assessment.

Staying on top of the business’ finances and knowing how to effectively handle personal and business bank accounts will ensure a problem-free dealing with HMRC. This is where organisational skills come in.

Online Accountants - Instant Quote - Xero Platinum Certified Advisers

Apart from being able to organise personal and business transactions well, an easy trick to financial management in business is separating your business bank account from your personal bank account. This should not pose any problem because banks prefer things this way anyway. With this, we mean that most banks do not allow personal accounts to be used for business purposes. Most banks would require businesses to have an account dedicated solely to business transactions. Although, usually, there are monthly fees attached, there are also a whole lot of business-specific benefits that come with the account as well. Read on to learn more about business bank accounts and whether or not you should have one for your business.

Do I need to open a business bank account if I’m a sole trader?

As mentioned, most sole traders use the same account for business and personal expenses. There is no law legally binding them to have a business bank account. However, for a more efficient tax filing process, it is suggested for sole traders to have a separate account for their business.

Do I need to open a business bank account for my limited company?

Limited companies are treated as separate legal entities and it is, therefore, logical to have separate bank accounts for them. However, similar to sole trader businesses, having a separate bank account for business is not a legal requirement. It is more for convenience and it better suits the fact that the company’s money is the company’s alone, so there should be no reason for a company director to share in the same account.

Banks often have different terms and conditions for different account types – including business bank accounts. When opening an account for your business, the account should be under the business name. When the bank finds out that you are opening an account for a limited company, chances are, they will recommend that you open a business account.

Running a limited company does not permit you to freely take money from it. The only ways you can access the company’s funds are through your salary, dividends, and any claim on company expenses that you personally paid for. Some directors take advantage of the director’s loan, which, of course, is one of their benefits. But director’s loans must also be paid back.

The dividends and money you receive as salary from your limited company are subject to personal tax. If you were a former sole trader who recently transitioned to a limited company, it would be wise not to use your old sole trader account or you’ll be paying for additional taxes you could have been exempted from.

Clients’ impression of the business is another important aspect to consider. In the eyes of most, if not all, clients, businesses with business bank accounts look more professional, credible, and trustworthy as business partners. So having a separate bank account for the company could mean more client ties.

What do I need to open a business bank account in the UK?

Below is a list of the documentary requirements when opening a business bank account in the UK:

  • Proof of identification for all company directors (passport, driver’s license, national identification card)
  • Proof of address (utility bill, council tax statement, recent bank statement)
  • Full business address (including postcode)
  • Contact details
  • Companies House registration number (for limited companies and partnerships)
  • Estimated annual turnover
  • Other additional documentation establishing a clean credit and banking history

How to open a business bank account in the UK

Opening a business bank account in the UK usually involves a two-step process. You may first be required to fill out an online application. After this, you can then schedule an appointment to meet a bank representative in person.

In some cases, you will be able to speak to a representative at the bank on the same-day you filed your application, but this depends on the bank’s schedule.

What should I expect from a good business bank account?

To attract more customers, banks come up with strategies that offer additional services. Some of these include:

Personal Adviser

A personal adviser is a financial expert whom you can speak to about your banking concerns. A personal adviser will help you assess your business and discuss the best options for your needs.

Low Charges

Most banks charge monthly fees for account maintenance, ranging from £5 to £10 per month. There may also be additional charges for certain services and transactions. Make sure to ask about these information when you speak to bank representatives about account opening.

Waived Fees During Introductory Period

As part of their promotional benefits, some banks will offer to waive charges within one year of opening your account. However, you will also want to know what charges your account is subject to after this introductory period. Remember to always think long term when opening a business bank account and see whether you’re getting the best possible rate or not.

Mobile App for Managing Finances

Having a mobile app to access your account will make it easier for you to monitor your finances and allow you to make wiser decisions. If your bank has an online accounting software that you can easily sync with your account, then transactions would be much easier to carry out.

Telephone Banking

Telephone banking is another convenience you would want to avail when doing your business banking. With your busy schedule operating a business, being able to readily speak to someone over the phone regarding your account will take so much load off your back.

Overdraft Facility

Check if a bank will allow you to borrow money through an overdraft. Ask about how much the bank can lend and how much the charges are (interests and other fees).

Foreign Transactions

Check if the bank is capable of processing transactions in foreign currencies especially if you have overseas clients. You would not want any trouble later on just because your bank can’t deal with foreign transactions.

Is it easy to switch accounts?

Once you consider opening a business bank account, you want to make sure you do business with the bank that gives you the best deals.

If, however, you already have an account with a provider, you may still browse for other options. If you do consider transferring to a different provider, talk to your current bank and see if they have something better to offer.

Should you decide to make the switch, most banks will make your transition easy by assisting you as you move your accounts.

Table of Contents