Do you need a business bank account?

When starting or running a small business, it’s important to open a business bank account. While it may seem convenient to use your personal bank account for business transactions, it’s essential to keep your business finances separate for both practical and legal reasons.

In this guide, we explain when and why a business bank account is necessary, the benefits it offers and how it can help you manage your finances more effectively and professionally.

Key takeaways

• A business bank account works like a personal account, but you should only use it for business transactions

• You must open a business bank account if you’re a limited company or limited liability partnership

• If you’re a sole trader or general partnership, you don’t need a business bank account, but it’s highly recommended

• Your provider could close your personal bank account if you use it for business purposes

• Business bank accounts offer a range of features tailored to companies, including accounting software and invoicing tools

What is a business bank account?

A business bank account works in a similar way to any other bank account in that you can view your balance and send and receive payments. Your account usually comes with a debit card, enabling you to easily make payments in store and online.

However, you should only use a business bank account for business transactions, not personal ones. Business bank accounts also come with an array of features tailored to business needs, such as employee expense cards, and accounting software and invoicing tools to help you track and monitor payments. 

Do I have to open a business bank account?

Whether it’s mandatory to open a business bank account partly depends on your business structure:

Do I need a business account as a sole trader?

As a sole trader, you and your business are one and the same – there’s no legal distinction between your personal and business finances. This means there’s no requirement to open a business bank account and, in theory, you can use a personal bank account for your business transactions if the bank permits this. 

However, using a personal bank account for your business can make it much more difficult to track transactions and monitor how well your business is performing. 

Do I need a business account as a limited company?

If you’ve set up as a limited company, the business is a separate legal entity from its owners and, as such, you must keep business finances distinct from those of the owner or director. This means you must open a business bank account. 

Some providers tailor their accounts specifically for limited companies and even help you register your company with Companies House when you set up your account.

Do I need a business account as a partnership?

Whether you need a business bank account for a partnership depends on the type of partnership you’ve set up.

If you’ve formed a limited liability partnership (LLP) or a limited partnership, you must open a business bank account. That’s because the partnership and its owners are separate legal entities, meaning the business must have its own financial records and accounts.

By contrast, if you’re operating as a general partnership, where the partners share responsibility for managing the business and its profits, a separate business bank account isn’t legally required. However, having one is still highly recommended.

Can I use a personal bank account for business?

You can only use a personal bank account if you’re a sole trader or general partnership. But even then, many banks don’t permit high volumes of business transactions, and if your bank detects you’re using your personal account for business reasons, it may close your account.

This is why it’s much safer to open a separate business account. What’s more, this ensures you keep your personal and business finances separate, which makes it much easier when completing your tax return and monitoring your company’s financial performance.

Business bank accounts also tend to offer perks that you simply won’t find with a personal account. Some of the benefits of a business bank account include accounting software integration, access to networking events and specialist business support, fee-free overseas spending and low-fee international payments. 

In addition, having a business bank account makes your business look more professional to clients and customers.

Who can open a business bank account? 

You can typically open a business bank account if you’re a sole trader, partner or company director of a limited company. Most providers also ask that you meet the following criteria: 

• You must be at least 18 years old

• Your business should have been trading for 6 to 12 months

• You’ve registered the business in the UK

• Your business meets a minimum annual turnover requirement

• All company directors are UK residents

What do you need to open a business bank account?

Exact requirements can vary between banks, but you typically need to provide the following information and documents:

• Proof of identity, such as a passport or driving licence, for all company directors or partners

• Proof of address, such as a utility bill or bank statement

• Business details, including the name, address and nature of the business

• Companies House registration number if your business is a limited company or LLP

• Your business’s estimated annual turnover and number of employees

• Business verification documents, such as a utility bill, correspondence from HMRC or an invoice from a supplier

• Tax and VAT registration details

How many bank accounts should a business have?

There’s no rule about the number of bank accounts your business can have - you may be able to hold multiple business bank accounts, but this depends on eligibility criteria. 

Having more than one account can be beneficial for several reasons. You might, for example, want to separate funds for different purposes, such as keeping money for salaries, taxes and operating expenses in dedicated accounts. 

You could also open accounts in different currencies to reduce exchange fees or choose accounts that offer specific benefits, such as higher interest rates, cashback or built-in invoicing tools.

However, keep in mind that having more than one account means more admin and potentially multiple account charges. You should also be wary of making several bank account applications in a short space of time. If the provider carries out a credit check each time, this can have a negative impact on your business credit score. Try to space out applications by three to six months.

What are the advantages and disadvantages of a business bank account?

As with all financial products, there are several advantages and disadvantages to consider when opening a business bank account.

Pros

• Keeps business and personal finances separate – This simplifies accounting, makes tax returns easier and helps you maintain clear financial records

• Projects a professional image – Using a business account shows clients, suppliers and lenders that your business is legitimate and well managed

• Easier to track income and expenses – A dedicated account makes it easier to monitor cash flow, manage budgets and spot financial trends

• Access to business-specific features – Many business accounts come with useful tools, such as invoicing software and multi-user access

• Builds business credit – Using a business account can help establish your business’s credit history, which may be helpful when applying for loans or other financing

Cons

• Fees and charges – Business bank accounts often charge monthly fees, transaction fees or charges for certain services

• Application process can be more involved – Opening a business account typically requires more paperwork and identity verification than a personal account

• Minimum balance or turnover requirements – Some business accounts require you to maintain a minimum balance or have a minimum annual turnover 

• Extra admin – If you have both a personal and business account, you have twice the admin to deal with

Do charities need to open a business bank account? 

Charities aren’t legally required to have a business bank account, but it’s strongly recommended. Having one helps protect the charity’s funds and ensures you’re managing money securely and transparently. 

A dedicated account enhances your charity’s credibility with donors and supports your ability to apply for funding. It’s also necessary if you plan to register with HMRC to reclaim tax through schemes such as Gift Aid. Many charity accounts are free business accounts, so they have no monthly fee.  

How long does it take to open a business bank account?

This partly depends on the provider. It’s typically faster to open a business account with an online or challenger bank, where you can often complete the application form in a matter of minutes. In these cases, your account could be up and running the same day or at least within a day or two. 

High street banks tend to have longer application processes, and it can take anywhere from one to four weeks before the bank verifies everything and opens the account. The process is likely to take longer if your business structure is more complex.  

Providing the correct documentation and information can speed things up.