In this guide
If you run a company, or are in the process of setting one up, then legally you have to have a business bank account. But they can be a great idea for sole traders and freelancers too. Here we explain how they work, and how they differ from e-money institutions.
Whether you are the director of a limited company, a freelancer, the head of a charity or a worker in the gig economy, choosing the right business bank account could save you money, time and stress.
Having a business bank account means that you can also apply for a business credit card and a business loan.
In this article, we explain:
- What is a business bank account?
- Do I need a business bank account?
- How to open a business bank account
- The best business bank accounts
- What about e-money accounts?
Read more: Setting up & running a business
This article contains affiliate links that can earn us revenue
What is a business bank account?
A business bank account works in a similar way to your personal current account, except that it is designed and used solely for business activity.
You can choose from number of different accounts depending on how you plan to use it. Many come with a range of specialist functions, including overdraft facilities, accounting tools and merchant services that let you accept card payments.
You are required by law to have a business account if you set up a limited company but it could be beneficial even if you don’t have to have one (see below). However, most business accounts will come with a fee, usually around £5 a month.
The money in your business account is protected in the same way as your personal account, meaning that up to £85,000 in the account will be covered should your bank go bust.
Read more: The best payment services for your business
Get £80 cashback when you open a Tide business account
Open a business current account with Tide and you could earn yourself £80 cashback. To qualify, you need to successfully apply before 30 April, use the code £80CASHBACK at checkout, and spend £100 within 30 days of account opening.
Tide’s business current account comes with no monthly fee, a market-leading business easy access account, and free invoicing from the Tide app.
The best business bank accounts
It’s important to choose the right account, as each offers slightly different perks and will charge you a different fee. Below are some of the top picks, and as always terms and conditions and eligibility applies.
Tide Business Account
Another good fee-free option, though no overdraft facility and you’ll pay a fee for cash withdrawals
If you successfully apply for Tide’s business current account before 30 April and spend £100 within 30 days of account opening you could earn yourself £80 cashback. Just remember to use the code £80CASHBACK when you sign up.
About the provider: Tide is another app-based bank that offers an easy-to-use business bank account with no monthly fee. Like with Starling, you can manage the account using your phone. You can apply for Tide’s business bank account on its website or using its app.
– No monthly fees
– Set up standing orders and direct debits for free
– Faster Payments will incur a 20p charge
– No physical branches, but you can make cash deposits at the Post Office for a £2.50 fee for deposits up to £500. Deposits over £500 will incur a 0.5% fee
– Easily connect your account to most accounting software
Tide does not offer overdraft facilities, and you’ll be charged £1 for each cash withdrawal you make from an ATM.
Due to Tide’s ease of access and low fees, it’s very popular with small businesses.
The Co-operative Bank
A sophisticated option if you want reliable online banking and expert business support
– Integrate your accountancy software, like Quickbooks, into your online banking for free
– Access to the Go Get Paid app to send invoices and receive money on the go
– Free support tools to help grow your business, such as guides and webinars
– Access to UK based business advisers on the phone and in branch
– Access to business services, such as tech support and payment solutions by Clover
These perks are also included in The Co-operative bank’s Business Current Account, which is only available to sole traders and single directors. The main difference is that the Business Directplus allows you to pay in a limited number of cheques and cash in branch for free. If this is something you don’t think you need, and if you’re eligible, then the Business Current Account could make the better option.
For both accounts, you can also apply for an arranged overdraft. If eligible, your interest rate will depend on your circumstances and an arrangement fee will apply.
Starling Bank Business Account
Easy to get started with no monthly fee, plus great overdraft facilities
– No monthly fees
– Make Faster Payments and set up standing orders and direct debits for free
– Access round-the-clock support via the app
– No physical branches, but you can make cash deposits at the Post Office for a 0.7% fee (minimum £3)
– Easily connects to accounting software such as Quickbooks and FreeAgent
You can also apply for an overdraft of up to £50,000 depending on the size of your business (though you’ll pay annual interest at 11.5% rep APR, plus an annual fee of 1.5%. This means a business loan might be cheaper.
Cynergy Bank
A great option if you’re looking for a savings boost
This means a £25,000 balance would earn approximately £31 a month in interest, which is slightly more than the £25 fee you’ll pay each month for standard electronic transactions.
It’s a useful feature if you want to keep your business savings and disposable income in one place, with very few other business accounts offering in-credit interest.
Virgin Money M account for business
A good all-rounder for businesses with an annual turnover under £1 million
– No monthly fee
– 0.25% cashback on purchases with the account’s debit card
– Easy integration with accounting software like Quickbooks and Xero
– Free bank transfers to UK accounts
– 0.9% fee for cash deposits
It’s worth noting that if your business has an annual turnover of over £1 million, you won’t qualify for this account. If your business is larger than this, you can apply for Virgin’s Business current account. However, you’ll pay a £6.50 monthly fee.
What about e-money accounts?
Alternatively, you could keep your funds with an e-money account. These are offered by Electronic Money Institutions (EMIs) which differ to regular banking providers.
While EMIs are also regulated by the Financial Conduct Authority (FCA), they aren’t protected by the Financial Services Compensation Scheme (FSCS). This means if they go bust, you won’t be able to claim compensation through this scheme for your losses.
This doesn’t necessarily mean that e-money accounts won’t offer the same services as their banking-licenced counterparts. Revolut*, for example, is an EMI and its business account can be used to send money, spend it abroad, and make payments.
What they can’t do is offer financial advice, manage any of your investments, or lend cash.
Revolut Business Account
A good pick for businesses that operate internationally and in foreign currencies
– No monthly fee with Revolut’s basic plan, or £25 a month for its ‘Grow’ plan
– Revolut’s basic plan, which charges no monthly fee, gives you up to five free transfers each month within the UK. However, you’ll pay £5 per international transfer you make
– Use your card abroad with no fees
– 2% fee for ATM withdrawals
If your business deals makes foreign transactions frequently, it may be worth considering Revolut’s ‘Grow’ plan.
It charges a £25 monthly fee, but you’ll be able to make five free international payments each month. You’ll also get up to 100 free transfers within the UK. You’ll also be able to exchange up to £10,000 worth of currency each month without paying a fee. In the Grow plan you can also get up to 2.25% AER/Gross (variable) on your savings.
Revolut is currently also giving one free month of membership on its premium business plans.
Do I need a business bank account?
Again, if you’re operating as a limited company in the UK, it’s a legal requirement to have a separate account for your business. The reason for this is that your business is deemed to be a totally separate legal entity to you, so you should not be using the account for personal reasons and vice versa.
Sole traders, freelancers, gig workers and contractors who are not set up as limited companies don’t have to open a business bank account. However, there can be several benefits of doing so:
1. Simplification
Combining your personal and business transactions in a single account can result in an accountant’s worst nightmare. That’s if you are fortunate enough to have an accountant and don’t have to do your own taxes and bookkeeping.
It can be difficult to know which transactions are your personal ones, and which are business expenses. A separate business account simplifies this process, saving you a lot of time and effort when it comes to self-assessment tax return time.
2. Professionalism
Paying and receiving money via a business bank account adds a level of professionalism to your company when dealing with clients and vendors.
3. It helps build up a credit history
A business bank account, if managed well, can help to establish a financial track record for your business. It’s worth noting that this is separate from your personal credit history. A positive credit file for your business can come in handy should you need to apply for a loan or even investment.
4. Access to other business products
Having a business account gives you access to other products that can be useful for your business, such as a business credit card and business loans.
Read more: The best business savings accounts
How to open a business bank account
Opening a business bank account in the UK works in a similar manner to opening other types of current account. It’s relatively straightforward if you know what to expect and are prepared.
You can apply for a business bank account online, over the phone, or in branch. Online applications are usually the quickest and most straightforward.
Before applying, it’s important to prepare the necessary documents, which a bank will ask you to provide in order to open your account. You’ll generally need the following:
- A UK driving licence or passport that proves your identity
- Contact information for everybody who will be using the account, including names, dates of birth and three years of address history
- Name and Companies House registration number of your business, along with information regarding its activities. You may also need to provide an estimation of your business’ annual turnover
- Some banks will require your accounts on Companies House to be up-to-date before your application can be accepted. It’s therefore important to do this in advance
Yheir banking-licenced counterparts. Revolut, for example, is an EMI and its business account can be used to send money, spend it abroad, and make payments.
What they can’t do is offer financial advice, manage any of your investments, or lend cash.
Read more: Best business credit cards
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