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What is a business bank account?

A business bank account is used for the income and outgoings connected with the business you run. It can be used by anyone who wants to keep their business finances separate from their personal current account bank account.

Whether you are a small business owner (SME), a registered limited company, a sole trader, partnership, sports club or charity, you can find the right business current account bank account for you.

In order to find the best business account you need to think about what type of business you run, how you will use your business bank account and whether you will need to pay employees. Consider whether you will need a business bank account overdraft and whether you will be operating your business bank account online or will need access to a bank branch to pay in cash and cheques.

Some business bank accounts offer free bank for accounts in credit, subject to certain terms and conditions. Others operate branch and online facilities, while many business bank accounts are online only. Which business bank account works best for you depends on how you conduct your business, whether you are planning to scale up, and the size of your business operations and payroll functions.

Why do I need a business bank account?

A business bank account is a current account you open independently of your personal bank account when you start a business. With your business bank account you can carry out and keep track of everyday business transactions, from buying goods to paying for services, tracking cash flow and managing expenses.

Your funds are also protected by the Financial Services Compensation Scheme (FSCS) up to £85,000.

Some business bank accounts have features that make it easier to organise your business payroll. Other business bank account benefits include being able to keep account of business expenses for tax purposes, the ability to build up your business credit record and access to start-up business advice.

If you are self-employed or a sole trader you do not need to set up a business bank account, although you will find it convenient to separate your personal finances from your business finances. If you set up a limited company you are legally obliged to have a separate business bank account. Sports clubs, charities and other group organisations often find it more convenient to have a business bank account so that all money and spending is kept separate from members' personal finances.

How do I choose a business bank account?

Business bank accounts usually come with features and services tailored to helping businesses, including features that allow you to manage payroll and invoicing, business overdrafts and debit cards.

Different businesses will require different types of business bank accounts. Some banks set fees and features based on the size of the business and amount of turnover.

The common features of a business bank account include:

  • An overdraft so you can borrow money to help manage cash flow – but look out for fees.

  • Debit cards for you and your employees.

  • Online banking so you have 24/7 access to your account via the web or an app.

  • A fee usually paid annually or monthly to cover the cost of maintaining your account.

As technology has advanced, many banks have developed their online and app features and services, to include more business-specific features. Also, since Covid-19, many businesses are manage their paperwork and banking almost exclusively online.

What are the extra useful features of a business bank account?

  • Accounting software integration that makes it easy for customers and their accountants to manage their business accounts. 

  • Receipt capture so customers can add notes and tag photos of receipts to transactions.

  • Spending insights with customisable categories for customers to keep track of  all spending, including their employees. 

How much does a business bank account cost?

Most business bank accounts charge a monthly or annual fee. Alongside these fixed fees, you should keep an eye out for less obvious charges for specific services such as ATM withdrawals, using an overdraft and receiving card payments, in particular from overseas.

The monthly cost of a business bank account starts at around £5 per month, but some accounts charge separately for automated payments or cheques.

What are the benefits of a business bank account?

There are many benefits to opening a business bank account.

  • Get invoices paid direct to your business account.

  • Track transactions easily with categorised spending.

  • With separate personal and business accounts your tax returns are simpler.

  • Forecast future revenues with detailed spending and income data.

  • Build a credit history for your business that can help with future financing.

How do I choose a business bank account?

Comparing different business accounts is an essential first step before opening an account. Banks usually offer accounts based on what type of company you have, for example start-ups, sole traders or partnerships, small and medium sized enterprises also known as SMEs, and large companies and corporations. 

Once you know which you’re eligible for, create a list of your business requirements, the features you use most, your company’s annual turnover and the fees they charge so you know which is best for you.

When you are thinking about whether to open a business current account you should consider how you run your business finances.

Choosing the right business bank account can help you with your business finances. Many business bank accounts enable you to integrate business and tax software such as QuickBooks, Xero and FreeAgent.

You can organise your invoices and receipts and keep track of all the income and expenditure for your business. Many business bank accounts offer mobile and online banking which can be very helpful if you are on the move or out of the office.

If you want to set up a limited company you will need to have a business bank account. Charities, partnerships, clubs and groups also prefer to have a business bank account to make sure that money is kept separate from the personal finances of the people involved. This can avoid any disputes over money or finances.

Do I need a business bank account if I am a sole trader?

You’re not legally required to have a business bank account if you’re self-employed or a sole trader but many people choose to, as it helps keep business and personal finances completely separate and easier to manage. 

On the one hand, it will be easier to separate personal and business transactions when it comes to filling in your tax return. However, you are unlikely to find a free business bank account, so you will need to factor in the cost of the monthly fees.

How do I open a business bank account online?

Nowadays, instead of taking weeks, with digital banks it only takes a few minutes to apply for a business bank account. Through the power of technology banks can offer an immediate decision (unless any specific checks are needed) an account number and sort code in minutes, and within three to five working days you’ll receive your card in the mail.

In some cases, you may also be asked for specific documentation to confirm your identity but this is decided on a case by case basis. The types of documents you could be asked for include:

  • A valid identity document such as your passport or driving licence.

  • A valid proof of address for both you and your business – if this is something like a utility bill it will need to be less than three months old.

  • Companies House registration documents for your business.

How much can I pay into a business bank account?

How much you can pay into your business bank account depends on the bank and the account you have with them, but almost all will have a set minimum and maximum balances. If you need to increase your balance you can often apply to your bank to do this.

Can I receive international payments into a business bank account?

Yes, although you may be charged a handling fee and sometimes a surcharge over and above the base currency exchange rate – and those charges will vary depending on the bank so you should check first. 

For international transactions you’ll need your bank’s Business Identifier Code (BIC) and your unique International Bank Account Number (IBAN), which come with every business bank account. 

Can I have more than one business bank account?

Yes, although if you want more than one account you’ll have to apply for each separately. 

Can I use my personal bank account for business?

Although you can use your personal current account for business transactions if you are a sole trader, it is much better to keep your personal and work finances separate. You cannot use a personal current account if you are running a limited company. 

Having a business bank account will make it much easier when you come to fill in the tax return from HMRC, whether it is a self-assessment form because you are self-employed, or you are filing a company report.

Can I use my business bank account for personal items?

It is better not to use your business bank account for personal items. Under HMRC tax rules, some business expenses can be offset again tax when you file your tax return.

By keeping your personal and business finances separate, you will be able to demonstrate that the spending in your business bank account is for work purposes only, and therefore qualifies for tax relief.

Can I get a business bank account with bad credit?

It’s possible to open a business account with bad credit but it may be difficult, especially if you’ve been declared bankrupt or had a County Court judgement (CCJ) against you in the last five years. 

How do I keep my business account safe from fraud?

Fraud and financial crime are happening more often, with fraudsters and scammer tactics getting more sophisticated by the day. A responsible bank account provider will have the security of your funds as their top priority, however there are also things you should do to protect yourself.

  • Make sure you keep your contact details up to date so your bank account provider can reach you if suspicious activity is seen on your account.

  • Never share your Online banking username or password with anyone over the phone, by text or email, even if the caller claims to be from your bank or the police.

  • Never share the answers to your memorable questions linked to your bank account 

  • Never share any unique verification codes or your one time passcode with anyone

  • Create passwords that are difficult to guess and don’t use personal information. It pays to use a mix of upper and lowercase letters, numbers and symbols

  • Always use different passwords for your online accounts

  • If you’re ever contacted by your bank via the phone, SMS or email and you’re not sure it is them, don’t hesitate to stop and call them back on their official customer service phone line to ensure the communication is genuine.

Read more:Business InsuranceBusiness LoansBusiness credit cards

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