If you’re a business owner based in the UK, opening up a business bank account should be a top priority. Business bank accounts offer a whole host of features that can help to improve the status of your company, as well as allowing you to separate your personal finances from your business expenses.
However, it can be hard to know where to start – particularly if you’re a start-up joining the world of business for the first time. There are so many different factors you need to take into consideration when opening a new bank account – whether it’s a personal account or you’re using it for business.
The type of account you go for will often depend on the size of your business and the funds you plan to use within your company, including both your income and your projected outgoings. It’s easy to feel lost when starting a new business, which is where Finance Rate comes in.
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Business Bank Accounts: What Are They and Who Are They Suitable For?
Business bank accounts are bank accounts specifically designed for businesses, so you can’t use one as a personal account. There are a range of business bank accounts available, with each one having different benefits and advantages.
Whilst business accounts tend to have some similarities with personal accounts, they’re used primarily for business transactions for sole traders, companies and businesses, clubs, societies, charities and partnerships.
Business bank accounts make life much easier in the long run for business owners, as you can conduct bank transfers and receive funds from invoices. You can schedule regular payments by using direct debits and standing orders – electronic payments can also be automatically set up for bills and employee wages.
It’s also easier to delegate accounting jobs to other members of staff within your business, so you don’t need to do all the work yourself. If you use accounting software, your bank account can be synced with it to keep you on top of your expenses, as well as simplifying the process of filling out your tax returns.
The account you go for will differ depending on a number of factors, including:
- The size of your business
- The type of business you run
- How many employees you have working for you
- Which industry or field your business is based in
- The funds you have available at the moment
- Your projected income
- Your total outgoings
- Any outstanding debts or loans you have
- Your credit score
According to the Companies Act 2006, it’s a legal requirement that you have a business account if you want to set up a business in the UK. You don’t have to set one up if you’re self-employed, but it’s still a good idea, as it makes the process of separating your personal and business finances much easier. You can also apply for business credit cards and business loans if you have a business bank account, adding another benefit to using them.
What Do You Need to Open a Business Bank Account?
If you’ve decided you’d like to open a business bank account, you will need to provide official documentation to your chosen bank or building society to get the process started. The paperwork required may depend upon things like:
- The type of account you’re opening
- The bank or building society you’ve decided to open your account with
- The size of your company
- The type of business you run
- Your credit history
You may find it easier to open an account with a bank you already have a personal current account with, but you don’t have to use the same bank if you don’t want to.
- Proof of identity – Identity checks will need to be conducted by your nominated bank. They’ll often require each director to provide proof of their identity, usually in the form of a driving licence or passport.
- Proof of address – You’ll need to provide your personal address, as well as your trading address and business address (in some instances, these may be different). You’ll usually be asked for items like your utility bills or proof of your correspondence with HMRC.
- Your trading name – Documentation showing your business trading name will be required, as well as the date and the number of your incorporation. You may also be asked to provide your Companies House registration details.
- Business contact details – Proof of your business contact details may be required, such as phone numbers and email addresses.
- Business verification documents – You may be asked to give proof that your business is legitimate, which will also be used by your bank to ensure that you’re not engaging in money laundering. Your bank may ask to see evidence of your business’ tax status, the number of employees you have and your projected annual turnover.
It shouldn’t be too hard to collate this information before your appointment, although you will need to ensure your company has been incorporated before starting your business account application.
Banks take money laundering very seriously (especially in cases involving businesses and registered companies), so it’s important to ensure your finances are up to date. They’re required by law to carry out Anti-Money Laundering (AML) checks and Know Your Customer (KYC) checks when you apply for a business bank account with them. You may want to consider hiring an accountant for financial advice, if you haven’t already got one.
How Many Business Bank Accounts Can You Have?
If you are new to the world of business, it can be hard to know how many business bank accounts you can open – especially if you are a start-up. Unfortunately, there’s no ‘correct’ number of business accounts for a business, but, this can actually work in your favour, as you could open as many as your business needs.
As long as you meet the eligibility criteria for each business account application, you can have as many business banking accounts as is appropriate for your business.
Note: Some business account providers won’t let you open multiple accounts, so be sure to check the different bank account options before choosing a provider.
Why Have Multiple Business Bank Accounts?
Just like with your own personal finances, there are various reasons as to why you might need separate bank accounts. Plus, keeping your money organised this way could help you further down the line.
Keep Income and Expenses Separate
It’s a good idea for business owners to at least have a business current account that can be used to pay-in and withdraw money.
Note: This is especially important for limited companies registered with Companies House, as they cannot use personal accounts for any manner of business.
Some business owners find it useful to have separate business bank accounts so that they can differentiate their money. You could have a business checking account for incoming payments from clients and then, if you have staff, another one for payroll.
If your company pays tax on a quarterly basis, you could transfer the money for this into one of your business bank accounts. By doing this, you won’t accidentally use the tax money for something else – saving you from a lot of potential hassle!
Speaking of tax, it may be worth opening a business savings account over a business current account for this money as this way, you will be able to gain interest on your reserves.
There are three different types of business savings accounts:
- Fixed term – a type of savings account that you put money into for a set amount of time on the agreement that you cannot take the money out before the time frame is over
- Notice – this style of savings account doesn’t have a set amount of time, but if you do want to withdraw any money, you need to give a period of notice
- Instant access – as the name suggests, with this type of savings account, you can access your money whenever you would like
Note: Naturally, the interest rates on these accounts vary depending on what type of business savings account you opt for.
Save to Reach Milestones
When starting a business, you’re likely to have certain goals you want to meet. However, this won’t just happen by chance.
Opening a business savings account allows you to put money away to reach these career milestones and the additional interest you’ll receive from this type of business bank account will help too!
Key Factors to Consider When Opening a Business Bank Account
Similarly to how you would open a personal current account, when opening a business bank account, there are numerous things to consider. You want to make sure your bank account works to your advantage, rather than making things more of a hassle.
More often than not, banks tend to incentivise new business customers and even customers switching current account providers with introductory period offers, such as being fee-free for a certain amount of time – usually at least 12 months.
If you are a start-up business owner, it may be a good idea to find a business bank account that is free and has no fees attached so that you can reduce your costs as much as possible.
Especially if you are a new business owner, ensure your business current account has an overdraft for any months when money is a little tight and you need a buffer.
Usually, business overdrafts come at an additional fee and there is a limit on how much extra money is available to you, so it is best to check the business account details to know what you are eligible for.
A Bank’s Reputation
If your business is slightly older and you’re looking to improve your reputation, it may be worth switching from your current bank provider to another.
There are a range of business bank providers who are known to be more ‘ethical’ in their practices, which could benefit you by impressing any potential clients. Some of these banks include:
- Nationwide Building Society – this banking provider is owned by its members and is working towards the United Nations’ (UN’s) Sustainable Development Goals (SDGs)
- Monzo Business Bank – as a fully digital business, Monzo Business is doing its bit to help reduce its environmental footprint as well as advocating for its customers mental health
- Starling Bank – voted ‘Best Current Account Provider’ at the British Banking Awards 2022, Starling Bank aims to be completely transparent about where it invests its customers money as well as supporting campaigns, such as #MakeMoneyEqual
Online Business Banking
As we’ve just mentioned, nowadays, some providers of business bank accounts are now fully digital, meaning they do everything either via online banking or mobile banking apps.
If you are someone who is always travelling around, the ability to manage your business finances via online business bank accounts or business banking apps may work in your favour.
Note: Some digital banking and electronic payments require online identification, for example, a card reader, so ensuring you have these with you at all times is crucial so that you can do your everyday banking.
However, if you are someone who deals with cheque deposits or physical cash, it may be best to find a bank that also offers in-person banking options.
Business current accounts can occasionally have limits on the number of transactions and cash deposits that can be made in a certain period of time. If you exceed this number, you may find yourself having to pay additional fees.
If you are a smaller business – even if you’re not just a start-up – you may want to opt for an account that allows for an increased amount of business activity so you can focus on what is important.
In our modern society, it can be shocking to hear that not all business banking accounts accept card payments! Therefore, it is extra important to ensure the bank provider you opt for offers this key feature.
If you run a business that will need to provide its employees with either a debit card or business credit card, making sure the banking provider you choose to go with offers this service is also something to look out for in the business account details.
Most business bank accounts come with a long list of fees as well as a number of regulatory requirements.
Note: If you join a bank that has an introductory offer, it is important to check what the fees will be after this period so you aren’t surprised with additional fees later down the line.
Some examples of these fees, include:
- Monthly account fees – usually, banks in the UK offer a free banking period for businesses for a range of time, but after this time period, the monthly account fees are priced between £5-£25, or even higher!
- Fees on ATM withdrawals – a lot of banks will charge you for any ATM withdrawals, especially if you use an ATM from another banking provider
- Maintenance bank account fees – if you meet a certain minimum balance requirement each month, then banks tend to remove the maintenance fees. This can also be true if you have a personal account with the same bank provider
- Transaction fees – transaction fees usually apply if you exceed the limit of transactions each month. Smaller businesses may not have this issue, but it is something to consider if you know your business is likely to make many transactions in a monthly period
- Fees for terminating early – if you close your bank account before your contractual period ends, you may be charged a fee
Integration with Other Tools
Some business bank accounts offer integrated accounting tools to make the general day-to-day running of your business a whole lot easier!
However, not all banking providers offer this feature – or if they do, it is only with certain business tools – so make sure to check if your banking provider can easily incorporate these features.
Business Bank Accounts vs Personal Accounts: What’s the Difference?
It may sound obvious, but knowing exactly what the difference is between a personal current account and a business bank account may not be as clear as you originally thought.
If you are a sole trader or freelancer, you may not think it is necessary to open a bank account simply for business purposes but some providers won’t actually allow you to use your personal current account for business use.
Some of these providers include:
Separating Your Personal and Business Finances: Why Every Business Needs a Business Bank Account
If you are a freelancer or sole trader, you may be questioning if opening a separate bank account for your business is even worth the hassle. Especially as it isn’t necessarily a legal requirement. However, we promise you that it is worth any potential stress.
Designed for Businesses
It’s pretty obvious, but business bank accounts are designed for businesses. Therefore, it is likely to have additional features that make business admin a lot easier. This can include:
- Integrated accounting software
- Spending categorisation
- Ability to upload receipts
Of course, each provider has specific terms and conditions, so make sure to double check what is available for your specific business before you make a decision.
Protect Personal Identity
Speaking of personal purchases, having a separate bank account for your business and one for your personal life, will prevent your personal identity from being tarnished if something fraudulent were to happen.
If you create an employer reference number (ERN) to open your business bank account, you can doubly protect yourself from any potential identity theft.
Improve Business Credit Rating
If you are serious about scaling your business, opening a business bank account could help improve your business credit rating. This is important if at some point in the future, you find yourself needing a business loan as your credit rating will implement this decision and could even mean you get a higher interest rate.
Even if this isn’t on your agenda, improving your business credit rating is never a bad idea.
Of course, you will only have a good credit rating if you do not go into any form of overdraft, so avoid this at all costs!
Note: If you are a newly formed limited company, a freelancer, or a sole trader, banking providers will also look at your own personal credit score.
Make Tax Season Easier
There’s a reason why tax season makes people shudder. This time of year is usually full of stress, anguish, and fret, but having a business bank account can make doing your taxes a lot easier.
For example, by having an account simply for business transactions, you won’t have to spend numerous hours looking through receipts trying to figure out what was a business expense and what was a personal purchase.
Plus, if your accounts ever need to be looked over by HM Revenue & Customs (also known as HMRC), you can rest easy that they will just be looking over your business transactions rather than your personal expenses.
We all know how essential a good image is to business, and having a separate business bank account can make you look far more professional to any future clients.
Any improved trust and credibility with potential clients could lead to even more business – always a good thing!
Prepared for Any Future Scaling
If you do get to a point where your business has outgrown the start-up title, and you need to switch to a bank account that has the new features you need, already having a business bank account can make this process far easier.
Exploring the Different Types of Business Bank Accounts
Hopefully we’ve just convinced you on the importance of having a bank account specifically for your business. But knowing what kind of account to have exactly – that’s another question entirely!
As we have hinted at, there are various types of business bank accounts available, so knowing how to find the right one for you can be slightly overwhelming.
Type of business bank account
What is the purpose of this business bank account?
|Typical transactions, for example, taxes and paying your employees
|Similar to a current account, but with additional features for start-ups, such as free banking
|Just like a personal saving account, use this to put money away
|Controlling all of your finances from an app
Choosing the Best Business Bank Account for Your Business
You now may know what kinds of bank accounts are available for businesses, but how do you know if it is the right fit for your company?
As business bank accounts usually come with some sort of fee attached, it is crucial you don’t pay out for something that doesn’t benefit you.
Type of business bank account
What business types would benefit from this bank account?
|All businesses would benefit from this type of bank account
|A start-up business (usually under 12 months old)
|Businesses working towards a particular goal or want a rainy-day fund
|Business owners who are always on-the-go or don’t want to go into a physical branch
The Best Bank Accounts for Small Businesses
As any small business knows, the main aim – at least for the first year or so – is to keep your costs to as little as possible. Unfortunately, there isn’t necessarily a correct place to do banking for businesses on the smaller side.
Like any bank account, it’s about choosing a provider that can offer everything that you need. Or, at least as close as it can do!
There are a few things to keep an eye out for when choosing a business bank account, such as:
- Business loan options
- Low, or no, monthly fees
- What is most convenient
How to Choose a Bank Account for Your Small Business
Not only should the above factors implement your decision, but you should also take into consideration aspects of your business that could impact what you need from a bank account.
What Services You Require
If you use a lot of accounting tools or services in your everyday business banking, ensuring that the provider you choose can easily implement these tools will save you from the hassle of having to do things manually, or finding new tools.
Evaluate Your Annual Turnover
Your annual turnover will affect the type of business bank account you are entitled to. Certain business bank accounts are only available to businesses that reach a certain amount of annual turnover, so be sure to check if you meet the terms and conditions before opening the account.
Ability to Switch Banks
If you are a start-up company that will potentially need more from a business bank account, discovering if you can switch accounts – or even change providers – at no cost before you even open an account may save you some money later down the line.
Access to Additional Financial Services
On the flip side, if you find yourself needing access to business loans or other credit facilities, seeing if your banking provider can offer you this before you get an account for your small business, again, could save you the hassle of switching providers at some point in the future.
As we have already mentioned, most business bank accounts offer a ‘no fee’ time period for new customers and/or businesses. However, once this is over, you may find yourself paying money for something that doesn’t meet your needs.
By working out how much it will cost you before you open the account, you will at least know you can afford the account fees and not be shocked further down the line.
Understanding Business Bank Account Fees and Charges
We’ve already established that part of owning a business bank account is the fees, but what exactly are these charges and why do you have to pay them?
Note: Even if your bank account claims to be ‘free’ or comes with ‘no fees’, it is likely that this will only be for a certain amount of time – usually, part of the ‘introductory offer’. Always double check the fine print to be sure!
Each banking provider will charge different amounts for various fees, so when choosing a bank account, it is always best to read over each individual terms and conditions, so you don’t get a shock in the future.
Some business account charges include:
- The general set-up of your account
- Everyday banking running
- Transaction charges
- Monthly account fees
- International transfers
- Annual account charges
- ATM withdrawals
- Using an overdraft
- International payments
You can keep your account fees to a minimum by sticking to the terms and conditions of your account. This is especially important if you are a start-up or small business that doesn’t have the reserves to pay for these additional charges.
Note: Bank providers should send you a statement that details all of the fees incurred either during that month or throughout the quarter. If you feel that you have been overcharged for something, you can always refer to this statement to be sure.
Reclaiming Business Bank Account Charges
According to HMRC rules, you can claim bank account charges as a business expense. This means you can request tax relief on various charges plus any interest on business loans.
Nowadays, it is far more complex to claim back any bank account charges, so make sure you are certain of the ‘mistake’ as well as the correct amount of money you would like back.
More often than not, people tend to get a partial refund, rather than the full amount, but this does not mean it isn’t worth your time to at least try and get your money back.
Note: To claim this tax relief, the name of the account must be the name of your business, not your personal name.
How do Free Business Bank Accounts Compare to Their Paid Alternatives?
As you’ve probably started to gather, the best bank account for your business is the one that fits your needs – whether that is paid or free.
Note: It’s important to remember that there is no such thing as completely free banking – just an introductory offer period.
However, you can find a business bank account that offers minimal fees and still meets your requirements.
The main difference between free and paid for business bank accounts is usually the offers you get within each package. Naturally, each banking provider offers different things, so there is no standard paid business bank account nor a free version, so it is best to look around before choosing the right one for you.
Banks on the high street have reduced their fees over the past few years since the introduction of challenger banks. Some examples include:
Therefore, there are now even more competitive packages to choose from when opening a business bank account. This means you are likely to find one that fits all of your needs at a price you can afford.
How To Open a Business Bank Account: A Step-by-Step Guide
When you run a business, you need to keep on top of your finances. Opening a business banking account is a fantastic solution, but starting the process off can seem daunting at first.
You’ll usually need to fill the eligibility criteria set by your chosen bank or building society. It’s worth reading through the information provided on their website before making your application, so you’re as prepared as possible. Some banks have specific accounts set up for small businesses or sole traders, so you may want to consider applying for one of those accounts if your company comes under either of these categories.
Whilst every account is different, there are several steps you’ll have to take in order to open your new business bank account:
- The first step is to choose the bank/building society and account you’d like to apply for. It’s important that you find the right account for your business type, as there are several different variations on offer. Comparison sites may help you to find better deals if you’re finding it hard to make a decision. Once you’ve found the right account for your needs, you should go through the terms and conditions to ensure you understand everything before making your application.
- You should check the eligibility criteria for your preferred account to see whether you’re likely to be successful with your application. There’s no point wasting time applying for an account you aren’t qualified for, although some banks may give you leeway on minor details.
- The next step is to submit an application form with your chosen business account provider. You may be able to do this online, although some banks will prefer to speak to you in person first.
- You’ll then need to provide the required documentation. If you’re unsure about what you need, your nominated bank/building society should be able to help you with this.
- Once approved, you should start to receive the assets associated with your account. As well as your documentation, you should expect to receive debit cards, credit cards and cheque books, as well as your account number and sort code.
Once your account has been approved and you’ve received your documentation, you can start using your new business bank account. It’s important to note that this process may differ slightly depending on the type of account you’re applying for, the bank or building society you’re using and the size of your business.
How Long Does it Take to Open a Business Bank Account?
|The length of time it takes to open a business bank account is dependent on multiple factors. As such, it’s not something we can state for definite. If you’re simply switching accounts, switches have to be completed within a seven day period, so it shouldn’t take any longer than that.However, if you’re setting up a business bank account for the first time, it may take longer. One of the main reasons for a lengthy wait between the completion of your application and receiving your documents is if the information/documents provided are invalid or incomplete. As such, it’s crucial you ensure you’ve gone through all the information available during the application process, to make sure you’ve done everything correctly.If you’re a larger business or you have a complex business structure, you may find that the account opening process takes longer than expected. This isn’t necessarily something to worry about though – if in doubt, you should contact your chosen bank/building society for an update.With any business bank account, you should expect to wait a few weeks before your application has been confirmed, so you should factor this into your business strategy before applying.Digital banks are often quicker than traditional banks, but again – this isn’t always a given.
Traditional vs Online Bank Accounts: What’s the Best Option?
In recent years, online and digital only bank accounts have become increasingly popular, with many people choosing to use them over traditional banks with physical locations. Conventional bank branches are closing down around the UK, and their limited opening hours can put people off using them, particularly if you’re not able to get to your bank due to your business hours.
Most conventional banks and building societies also have their own digital services, as well as in-branch resources. If you want to use your physical branch out of hours, you’ll usually have the option of using an app or phone banking, as well as online banking.
However, this is not a comprehensive list, so it’s worth shopping around to see which bank is best for you and your company.
With digital banking, you should have access to all the features that a normal bank would have, but through your phone or computer. This means that you can use your business bank account 24/7, making digital banks much more convenient. However, if you prefer to have the option to speak to a branch employee in person, you may want to consider using a traditional bank instead.
Digital banking is also regulated like conventional banks and building societies. The majority of UK-based online banks are regulated by the FSCS (Financial Services Compensation Scheme), protecting you for up to £85,000 in the unlikely event that your bank fails. Many digital banks are affiliated with other more traditional banks – if this is the case, you would also get the protection of the bank they’re connected to.
Switching Business Bank Accounts: Explained
We know that switching business bank accounts sounds complicated, like a lot of hard work and it will take up hours of your time, but nowadays, it’s never been easier to switch banking providers!
If you feel like you could get better services elsewhere or don’t feel fully satisfied with what your current bank account provider is offering you, it is well worth taking the time to switch over – especially with the incentives providers now offer customers for switching.
Some of these incentives include:
- Exclusive rewards and products, such as free money for simply switching
- Receive introductory offers, such as low – or no – fees
- Access to digital banking tools, such as apps, and additional customer service support
How to Switch Business Bank Accounts
Small businesses – those with an annual turnover of less than £6.5 million and less than 50 employees – may be able to use the Current Account Switching Service to switch banking providers.
This means they will do all of the work for you, such as moving across your payments, standing orders, and any direct debits. Like we said, switching business bank accounts has never been easier!
What do Larger Businesses Need to Switch Business Bank Accounts?
If your company does not qualify for the Current Account Switching Service, the process of switching providers may be slightly more complicated for you, but we still believe it is pretty simple to do.
Below, we’ve listed out everything you need to do to switch business banking providers.
1) Apply for a new business bank account
Once you have decided which banking provider you want to move to, apply for a business bank account with them.
2) Update your processes and/ or invoices
Depending on how you run your business, you will need to advise any clients and/or customers of your new banking details. If you use a website, update your payment gateway, for example, Shopify.
3) Amend your standing orders and/or direct debits
If you have any monthly outgoings, ensure that you update these to match your new account details.
4) Move any outstanding money into your new account
Sometimes, transferring money from one account to another can come at a cost, but the process should be similar to how you would usually move money.
5) Cancel your credit and/or debit cards
Like when opening any new bank account, ensure that any cards related to your old account are not only cancelled but also destroyed.
6) Update any accounting tools
If you use any integrated software for your accounting, you will need to update this to prevent any mishaps later down the line.
7) Close the account (if you want to)
Once you are sure everything is where it needs to be and you have updated any tools with your new account details, you can close your account. However, this isn’t always necessary, for example, if you wanted a back-up or spare account, you could always leave it open just in case.
What are the Must-Have Features of a Business Bank Account?
What exactly you deem a ‘must-have’ for your business bank account, of course, depends on what you need from a bank account for your business.
When comparing bank account providers, not only should you take into consideration the cost of (potentially) switching or opening an account, but also what services and additions are available to you.
Some of these, include:
- The ability to use business banking apps or other digital banking services
- Debit and credit cards
- Services for international payments
- In-person banking options, such as cash withdrawals
- Any additional account charges such as for cashing cheques
- The ability to integrate any accounting software
- Business loans
- Overdraft options, including overdraft charges
- The interest rates
- The ability to make international transfers
- Financial advice from the banking provider
- Telephone banking options
You may be able to find a business bank account provider that offers every single one of these features, but by prioritising your ‘must-haves’, you should be able to find one that meets your needs.
Using Your Business Bank Account Effectively
Using your business bank account effectively is essential for managing your finances and ensuring smooth day-to-day operations. Here are some key points to consider when it comes to getting the most out of your business bank account.
Keep Your Business and Personal Finances Separate
Although it is possible to use the same account to make business and personal transactions if you’re a sole trader or small business, it can complicate things.
Differentiating your mortgage, credit card payments, or food shopping from business transactions is a challenge, especially as your business starts to grow.
Making sure your business and personal finances are separate from the start can help you maintain a clearer picture of your company’s cash flow and financial health. Not having to manually remove personal assets and liabilities from the table helps to keep record-keeping accurate and makes tax filing simpler.
Make Use of Introductory Offers
After opening a new account, banks will often try to attract new customers by giving them free business banking for a set period of time, whether that period be for 3 months or longer.
If you’re starting a new business, introductory offers are a great way to keep costs down while you’re establishing yourself in your new venture.
Keep track of your business transactions and maintain accurate records, whether physical or digital.
Regularly review your account statements, reconcile them with your financial records, and categorise your expenses appropriately. Proper organisation helps with budgeting, tax planning, and identifying potential issues or discrepancies
Utilise Online Banking Services
Most banks offer online banking platforms that allow you to manage your account, view transactions, and make transfers conveniently.
Take advantage of these services to streamline your banking tasks, save time, and have better control over your finances.
Monitor Cash Flow
Keep a close eye on your cash flow by regularly checking your bank account balance and monitoring incoming and outgoing transactions. This practice helps you maintain a healthy cash flow and helps identify any potential issues early on.
Automate Payments and Invoices
For your convenience, try to set up automated payments for regular expenses, such as utilities or subscriptions – it reduces your administrative duties and ensures timely payments and avoids late fees.
Additionally, using online invoicing tools can streamline the billing process and track outstanding payments.
Explore Business Banking Features
Many business bank accounts offer additional features specifically designed for businesses. These may include features like merchant services, business credit cards, business loans, overdraft facilities, or integration with accounting software.
Assess these features and determine whether they align with your business requirements.
Be Aware of Transaction Fees and Charges
Understand the fees associated with your business bank account, including monthly maintenance fees, transaction fees, and any additional charges for specific services.
Compare different account options to ensure you’re getting the best value for your business needs.
Regularly assess your business banking needs and determine whether your current account still meets those needs effectively. As your business changes over time, a current account might not be enough and you may require different services or features; for example, a sole trader will have different banking requirements to a limited company. Don’t hesitate to switch to a different account or negotiate with your existing bank to ensure you have the best banking solution for your business.
Choose the Right Bank Account for Your Needs
Be sure to research different banks and their offerings to find the business bank account that suits your needs. Consider factors such as fees, transaction limits, online banking capabilities, customer support, and any additional services that align with your business requirements.
If you don’t feel like you need someone on-hand in a branch or won’t be in a physical branch that often, maybe you’d prefer the app-only approach of challenger banks (see app-based banks below).
Depending on your business type, you might prefer your business to be associated with the historic clout of one of the ‘big four’ banks; Barclays, HSBC, Lloyds Banking Group, and NatWest Group.
Look into App-Based Banks
In addition to finding the right bank for you, a more recent addition to the banking landscape, app-based banks (aka challenger banks) do not have physical branches but operate instead as apps on a smartphone. This is an attempt to innovate on the typical banking model and differentiate themselves from more established UK banks.
Apart from removing the face to face aspect of banking and allowing access to your accounts with a touch of a button from anywhere, many of these banks offer a slew of other innovative features for businesses too.
What are the Pros and Cons of Opening a Business Bank Account?
While opening a bank account for your business might seem like the expected thing to do, it might not always be the best course of action especially for smaller or newer businesses.
To help you consider the broader picture and come to the right decision for you, below Finance Rate has compiled some of the upsides and downsides of opening a business bank account.
|Separation of personal and business finances with a dedicated business bank account to simplify record-keeping, enhance financial transparency and make it easier to manage your business’s financial transactions.
|Some business bank accounts may come with monthly costs, maintenance fees, transaction fees, and charges for certain services.
|Operating your business with a separate business bank account helps make a business appear more professional and credible and helps build trust with customers, suppliers, and partners.
|Opening a business bank account can involve providing various documents and meeting specific requirements, such as proof of business registration, identification, and business plans. This can involve some paperwork and administrative effort – as well as being time-consuming.
|Makes it easier to track income and expenses, reconcile accounts, and generate accurate financial reports with a clear and centralised record of business transactions.
|Some business bank accounts may have minimum balance requirements – failing to maintain the specified minimum balance may result in additional fees or penalties.
|Business-specific banking often comes with additional features tailored to business needs such as online banking services, merchant services for card payments, invoicing tools, payroll management, and integration with accounting software.
|While a business bank account helps separate personal and business finances, it does not provide complete personal liability protection. In certain circumstances, such as personal guarantees for business loans, creditors may still have access to personal assets.
|A dedicated business bank account makes it easier to separate business-related income and expenses, simplifying the process of filing tax returns. You can easily identify deductible expenses and provide accurate financial statements to accountants or tax authorities.
|Depending on the account type, accessing funds from a business bank account may involve additional steps or approval processes. This may cause delays in withdrawing or transferring funds, especially time-consuming in cases of large transactions.
|Allows you to establish a relationship with a specific bank. Over time, this relationship may lead to access to additional services, loyalty rewards, favourable financing options, and personalised support for your business needs.
|For sole traders in the UK, the line between personal and business finances may be less clear. While it’s not a legal requirement for sole traders to have a separate business bank account, it can still be beneficial for better financial management.
Finance Rate is here to give you the knowledge you need to come to your own informed decisions. Consider the above points about whether opening a business bank account is the right choice for your business.
Remember to research different banks and account options, and consult with a financial advisor or accountant who can give you tailored guidance based on your specific circumstances and business needs.
Protecting Your Business: Security Measures for Business Bank Accounts
Separate Your Personal And Business Bank Accounts
Public Limited Companies (PLCs) and other corporation types need a designated business bank account, but sole traders don’t necessarily need to open a separate business account.
Even if there isn’t a legal requirement to separate your personal and business bank accounts, it can help you to track business transactions, identify deductions, manage your cash flow, demonstrate credibility and help build your business credit rating.
Regularly Check Your Business Bank Account
Make sure to check your business bank account often, at least once per week.
It takes less time than you realise to keep a regular eye on your finances and helps you easily spot fraudulent activities or potential bad charges. Provided you trust them, you can also have an accountant or teammate do this on your behalf.
Use Strong Passwords
Strong passwords should not be reused and normally include a mixture of upper- and lower-case letters, symbols, and numbers. Using strong passwords for your bank accounts and all other workplace accounts is essential for protecting your business from fraudulent activity.
To support you in this, trusted password managers are available – these tools let you store different passwords without remembering them by heart and can even allow you to conveniently auto-fill your passwords when using certain software and applications holding sensitive data.
In addition, you could go even further with your password manager and introduce two-factor authentication (2FA) to your business bank account and other sensitive information.
2FA means you need to provide two pieces of identification before signing in to your bank accounts, such as a password and security question. This adds an additional layer of protection.
It shouldn’t be too difficult to implement this step across your business, as banks with online functions and challenger banks are likely to offer 2FA.
Train Your Staff
Your business bank account is only truly secure if your staff knows how to avoid creating breaches.
A strong security program and employee education about exercising caution, responding to a corporate account takeover, warning signs and safe practices are critical for protecting your business and your customers.
Cyber-security training and seminars are also recommended to ensure your employees are up to date with the latest in cyber security best practices, such as;
- Know where to log in to business bank accounts without leaving the business vulnerable
- Understand how to identify and not open phishing emails or malicious links
- Keep their ID cards and passwords safe
- Preventative measures
- Contingency in the event of a security breach
Partner With Your Bank To Avoid Unauthorised Transactions
Some banks offer safeguards such as device authentication, callbacks, multi-person approval processes, and limits that protect you from unauthorised transactions. Be sure to research these features ahead of time and determine if a future or current bank provides preventative measures you deem appropriate for your business.
With online fraud an ever-present risk, safeguarding your company’s data should always be a high priority.
By implementing a few straightforward measures like the above as part of your fraud prevention plan, you can effectively protect your company and foster a zero-tolerance culture towards fraud.
This proactive approach not only defends against existing threats but also helps mitigate unforeseen risks in the future.
Can You Open a Business Bank Account With Poor Credit?
Having good credit is beneficial if you’re starting or expanding a small business, and enables access to loans and credit facilities necessary for business growth. But opening a business bank account with a county court judgement (CCJ), low credit score, or an inconsistent credit history is still possible.
If you have encountered challenges with previous business or personal checking accounts, finding the right account option may require some effort.
Business bank accounts that do not conduct credit checks are specifically designed with this in mind, and do not perform a rigorous assessment of your credit history when you apply. This can assist companies in effectively managing their finances, regardless of their credit rating.
Please note that eligibility for a no credit check business bank account is not guaranteed.
As a business you’d need to meet the provider’s specific criteria and accept their terms and conditions before they can qualify for an account.
How to Apply for a No Credit Check Business Bank Account
The time it takes to open a business account without credit checks can vary among different providers, with some accounts being opened within minutes. To make the process easier it’s ideal to have typical documents to hand which can verify your identity, such as a passport or driver’s licence.
In addition to this, you may be required to submit proof of address, such as a utility bill, council tax statement, or bank statement from the past three months.
To apply for most business bank accounts without credit checks, you can normally submit an application online. The following information will typically be required:
- Personal details: Your name, address, and contact information.
- Partner details: Information regarding any individuals associated with the account, such as partners, directors, or employees.
- Business details: The name, legal status, and contact details of your business.
- Business finances: Providing an estimate of your business’s turnover and disclosing any bankruptcy-related information, if applicable.
Advantages of No Credit Check Business Bank Accounts
A business bank account that doesn’t require credit checks can provide several advantages, including:
- No credit checks: When applying for a business bank account for bad credit, there is no need to undergo credit checks.
- FSCS protection: Certain providers offer protection for up to £85,000 of your funds through the Financial Services Compensation Scheme. However, your business must meet specific eligibility criteria to qualify for this protection.
- Spending insights: With a digital business bank account, you can easily monitor your company’s expenses and receive instant payment notifications.
- Digital invoices: Some providers offer the convenience of digital invoicing, allowing you to maintain more accurate payment records for your business.
Disadvantages of No Credit Check Business Bank Accounts
The main disadvantages of a no credit check business account are:
- No overdrafts: Unlike traditional current accounts, most business accounts for bad credit don’t come with an overdraft facility.
- No interest: Business accounts for bad credit don’t usually offer interest on in-credit account balances.
Fees Associated with No Credit Check Business Bank Accounts
Many business bank accounts that don’t require credit checks impose fees, transaction charges, or both. While some of these accounts may be free to open initially, they may introduce a monthly account fee if your business income grows. Here are some typical fees associated with business bank accounts that don’t involve credit checks:
- Foreign transaction fee: This fee is levied when conducting transactions in a currency different from your account’s base currency.
- Cash withdrawals: Charges may apply when withdrawing cash from your business bank account, particularly if it exceeds a certain limit or is performed at non-affiliated ATMs.
- Direct debit payments: Some accounts may impose fees for setting up and managing direct debit payments.
- Issuing additional or replacement cards: If you require extra or replacement cards for your business bank account, fees might be involved.
- Admin and sending letters: Certain transactions or requests, such as requesting statements or account-related correspondence, may incur administrative fees.
- Account management tools: Some accounts may charge for additional features or tools that assist in managing your business finances effectively.
It is important to be aware of these fees when considering a business bank account with no credit checks.
Review the Business Bank Account Terms and Conditions
It’s important to note that not all banks provide business bank accounts without credit checks. Before applying for an account, it is advisable to review the terms and conditions of the available business account options. If any details are unclear, try to contact the customer service team of the respective bank to get a better understanding.
Some ways to improve your credit for the future include;
- Timely invoice payments: Paying your invoices promptly demonstrates your company’s reliability in meeting repayment obligations and showcases effective money management skills.
- Ensure you’re on the Electoral Roll at your present address. This step holds significant importance since being unregistered can make it exceedingly difficult to open any type of business bank account. If you are not currently registered, you can easily do so by visiting the Government’s register to vote page. It is advisable to complete this process as soon as possible, as the Electoral Roll is updated biannually (Spring/Autumn), and it may take credit referencing agencies up to two months to incorporate the updated information into their records following the publication of the register.
- Timely filing of accounts: Submitting your business accounts to Companies House and tax returns to HMRC on time can contribute to an improved credit score.
- Restricting credit applications: Making excessive credit applications can have an adverse impact on your credit score, potentially reducing your chances of obtaining credit approval. It is beneficial to limit such applications.
Frequently Asked Questions
Are business bank accounts protected by FSCS?
If your business operates as a distinct legal entity, such as a limited company, it is eligible for protection of up to £85,000. This coverage is separate from the £85,000 protection offered to individual accounts held within the same bank or banking group. In this scenario, the protection applies to the business as a whole, safeguarding its funds, rather than providing individual protection to each person associated with the business.
Authorised financial services businesses are generally excluded from coverage.
For a comprehensive list of entities that are not protected, please refer to the Prudential Regulation Authority’s Rulebook.
Is it illegal to use a personal bank account for a limited company?
Using a personal bank account for business transactions is not permitted for a limited company. It is illegal for a company to conduct its financial transactions through the personal bank account of its directors or shareholders. Instead, the company must use its own designated bank account for all financial activities.
Do I need to register my business before getting a business bank account?
When operating as a sole trader, there is no legal obligation to maintain a separate bank account. However, if you choose to establish a limited company, you will be legally obligated to open a dedicated business bank account. This requirement arises because, as a limited company, your business is recognized as a distinct legal entity separate from yourself.
Can I spend money from my business bank account?
As long as you reimburse the funds to the business, preferably in a timely manner, withdrawing from the business is not illegal. However, it can create additional work for you or your accountant. It is important to note that mixing business and personal transactions can introduce risks, such as impacting the business’s financial stability or causing delays for finance teams. Ideally, a dedicated business bank account should be used solely for business purposes to mitigate these risks.
Can I use a personal account for business?
If you are a sole trader, you can use your personal account for business transactions. However, having a separate business account can help with financial organisation.
In the case of limited companies, using a personal bank account for business is not allowed. A dedicated business account is necessary as the company is a separate legal and financial entity.
Furthermore, having a business bank account facilitates better accounting management, especially for limited companies. It allows for clear and accurate tracking of business income and expenses in one centralised place.
What is a UTR?
A Unique Taxpayer Reference (UTR) number is an identifier that combines the tax office identifier, unique reference, and checksum to provide a unique and verifiable number for each taxpayer. It is normally structured in the following manner;
Tax office identifier (first two digits): The first two digits of the UTR number indicate the tax office that issued it. This identifies the specific HM Revenue and Customs (HMRC) office responsible for managing your tax affairs.
Unique reference (next six digits): The following six digits form a unique reference number assigned to the individual or entity for whom the UTR is issued. This reference number distinguishes between different taxpayers within the same tax office.
Checksum (final two digits): The last two digits of the UTR serve as a checksum. This checksum is a validation mechanism employed to ensure the accuracy of the UTR number. It helps identify and rectify any errors or inconsistencies that may have occurred during the entry or processing of the UTR.
Do I need a UTR to open a business bank account?
No – UTR numbers are only required for individuals and entities who have tax obligations or need to interact with HMRC for tax-related matters. Examples of people who need a UTR number include;
- Self-employed individuals such as freelancers, contractors, consultants, or sole traders.
- Limited companies including private limited companies, public limited companies, and foreign companies with a UK branch.
- Partnerships which are business entities formed by two or more individuals or companies. Each partner will have an individual UTR.
- Trusts and estates that generate income or have tax obligation – this applies to both discretionary and non-discretionary trusts, as well as estates of deceased individuals.
- Non-profit organisations like charities that have tax obligations, such as filing annual tax returns.
Are there any applicable fees when opening a Business Bank account?
Opening a bank account for a limited company can entail various fees. These may encompass charges for account maintenance, transactions, and ATM withdrawals. It is crucial to conduct thorough research and compare the fees and services offered by different banks before reaching a final choice.
Is it difficult to switch banks?
The misconception that switching banks is a challenging task often stems from outdated banking systems. However, with a modern online business banking platform, switching banks can be relatively effortless and completed in as little as 10 minutes.
An effective online banking platform should provide the following features:
Streamlined online onboarding: The signup process should be simple and user-friendly, allowing you to swiftly open an account without unnecessary complications.
Clear guidance for account setup: The platform should provide clear instructions and step-by-step assistance to help you set up your new account and seamlessly transfer your banking activities.
Automated payment assistance: The new bank should offer support in ensuring that your automatic payments are correctly set up to avoid any disruptions or issues.
It’s crucial to conduct thorough research and comparisons before making a final decision. A common challenge is selecting the right bank that aligns with your specific needs, as different banks offer diverse services, benefits, and fees, so make note of necessities you cannot do without and determine if a bank delivers on these as a priority first before exploring features you’d like to have.
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