Your hard-earned cash may be the lifeblood of your business and choosing the right business bank account could give you a better chance of tracking your transactions and storing your money safely. In this guide, we’ll explore why you may want to open a bank account for your business, and when you might need to do it.
What is a business bank account?
A business bank account is a financial account for transactions relating solely to your business. It’s not the same as a personal account, which records your personal income and expenditure, plus other financial services. You may be able to open a business account if you’re self-employed (a sole trader or business partner), the director of a limited company, and in other contexts, like if you’re a key official of a community organisation.
Do I need a business bank account?
If you’re taking your first steps as a limited company or business partnership, your business should be recognised as a standalone legal entity. And a bank’s terms and conditions may state that the inflow and outflow of money must be for business purposes only, such as dividends, expenses and your salary, as well as sales and other business expenditure. Your business bank account allows you and anyone you share your bank statements with – like an accountant – to see your financial activity at a glance.
If you operate as a sole trader, you may manage your business transactions through a personal account if you wish, but many sole traders prefer to open a business bank account to keep their personal finances separate, which may help make bookkeeping and tax returns less complicated.
Why open a business bank account?
If you’re taking your first steps as a business owner, here are some reasons you might want to open a company bank account:
- Protect your money – up to £85,000 (per person) of your business account money is protected by the Financial Services Compensation Scheme (FSCS) if your bank or building society goes bust and is FCA registered. Banks can also alert you to suspected fraudulent activity on the account, and may be able to refund you if you’re a victim of fraud.
- Simplify your tax returns – having a dedicated business account with its own bank statements separated from your personal account could make it easier to identify your business sales and expenditure, and could help to reduce the likelihood of errors when you complete your tax returns.
- Improve your credit rating – you could build up a credit rating for your business by opening a company account, which could help you access business loans in the future if you’re looking for ways to scale-up.
- Professionalism – your clients may prefer (or make it mandatory) to only work with entrepreneurs that have their own business account.
- Managing cash flow – having your sales and expenditure available at a glance in a separate account gives you oversight over your business cash flow.
How to open a business bank account
Many high street banks offer business bank accounts, so it’s worth doing your homework to see which business bank account is best for you and your business.
Once you’ve made your pick, to open a business bank account as a sole trader, it’s likely you’ll need the following:
- Photo ID (such as a driving license or passport)
- Proof of address (such as a recent utility bill with your address on)
When opening a business bank account as a limited company director, you may have to provide the above, plus:
- A Certificate of Incorporation
- VAT registration (if applicable)
- In some cases, your estimated annual turnover or a business plan.
If you’re applying for a business bank account through a partnership, you could be asked for any of the documentation mentioned above. Additionally, if you’re part of a limited liability partnership, you may need to provide a registered members list with information about each members’ shareholding.
Finally, some banks may also ask to run a credit check, which may reduce the need to provide additional documentation.
Which business account is the best for my business?
We’re not here to promote any one business bank account in this guide and regardless of the below guidance, you should always do your research to find what works best for your business. So, here are five things to consider when deciding which bank to open your company account with.
Business accounts carry account holder charges, which could be based on the number of transactions you make, or a flat fee. It’s worth shopping around to get the best rate; some banks may waive the fee for an introductory period.
There’s a lot of paperwork when it comes to managing finances, but many banks are increasingly using technology to reduce your admin headache. You may want to check if a bank offers features like photo receipt technology, and how easy the online banking portal is to use.
Some ‘bank accounts’ may not be run by banks, but rather, fintech companies that partner with prepaid card firms. One consideration to make with these providers is that if a prepaid card provider goes bankrupt, your money may not be protected under FSCS, which protects money held by FCA registered banks, at up to £85,000 per person. This means your money could be at risk so you should always do your research and read the T&C’s before signing on the dotted line.
4. Accounting support
Some banks offer accounting support in the form of software like Quickbooks, Xero or even their own bookkeeping portal as part of the package. Every business owner has to tackle their taxes each year, so you may wish to research each bank’s accounting support services to see how it may be able to help reduce your admin burden.
5. Ease of switching
You may want to find out how easy it is to switch business bank accounts in case you weren’t happy with a service. For example, some banks may charge cancellation fees.
Read more from the Tyl team
- Protecting your business against fraud
- Small business inventory management
- What is PCI DSS compliance?
This has been prepared by Tyl by NatWest for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.
Tyl by NatWest makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.
Tyl by NatWest accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.