Can a business open a cash ISA?

If you run your own business, it’s wise to have a savings cushion to cover unexpected bills or protect your cash flow during quieter periods.

One option many individuals consider is a cash ISA – a popular way to earn interest tax-free. But how does it work if you’re self-employed or running a small business? This guide breaks down what you need to know.

At a glance

• Business ISAs don’t exist – you can only open one as an individual 

• You can only pay personal money into a cash ISA

• If you want to use business funds, you must first withdraw the money, ensuring you declare it properly, and move it to a personal account

• Businesses can choose from a range of different savings options, including easy-access accounts, fixed-rate bonds and investment accounts

Do business ISAs exist?

In short, business ISAs don’t exist. ISA stands for Individual Savings Account, so you can only open one as an individual, not as a business. 

This means that if you want to set aside some of your business funds in a savings account, you need to open a dedicated business savings account to do so. This is particularly important if you’re a limited company or limited liability partnership, because you must keep business and personal finances separate. 

If you’re a sole trader, on the other hand, there is no legal distinction between your personal and business finances. This means you could, in theory, use personal savings accounts to house business funds. But you still need to be careful.

Can I pay into my ISA from my business account? 

The short answer is no. You cannot pay directly from a business bank account into your personal ISA, regardless of your business structure.

An ISA is a tax wrapper for your personal savings. For compliance and anti-money laundering regulations, ISA providers will only accept contributions from a personal bank account in your name.

The money you contribute must be your own, after it has been drawn from the business and any relevant tax has been paid.

The correct process

Before you can contribute to your ISA, you must move the money from your business to your personal bank account.

• For limited companies and partnerships: You must formally pay yourself. This is typically done as a salary (via PAYE), a dividend, or a profit-share payment. Once this money (after any tax is accounted for) is in your personal account, it can be used for your ISA.

• For sole traders: You must transfer the money from your business account to your personal current account. This is known as "drawings." You can then fund your ISA from your personal account.

Key reminder: You are always contributing after-tax personal money to your ISA. All contributions must fall within your annual ISA allowance, which currently stands at £20,000 for the tax year. This limit can be split across different types of ISAs, including stocks and shares ISAs.

What are the alternative saving options for businesses?

There are plenty of alternative options to consider when building a financial safety net for your business: 

• Business savings accounts – Like personal savings accounts, you can choose from easy-access accounts for quick withdrawals, notice accounts requiring a set number of days’ notice, or fixed-rate bonds where you tie up your money for a set period in return for higher interest

• Money market funds – These pooled investments hold short-term, low-risk assets such as government bonds and certificates of deposit. They can offer higher returns than a standard savings account

• Investment funds – Businesses can open investment accounts that allow them to invest in shares, funds or bonds. These can potentially outperform savings accounts, but come with greater risk

Read more...

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• How many business bank accounts should you have?

• How much should a business have in savings?

• Eight ways to cut costs and save money in your business