Do I need a business bank account?

Business woman looking at finances

According to data shared by Martin Lewis and the team at MoneySavingExpert, more than five million people are self-employed or working as freelancers in the UK, whether that’s as their full-time gig, or just as a side hustle.

While many people can get away with continuing to use their personal bank account for their business transactions, there are some instances where you are required by law to have a proper business bank account or business savings account in place.

In this guide, we’ll discuss what a business bank account is, the difference between a personal bank account and a business bank account, plus when you might need one and the requirements for opening one.

What is a business bank account?

A business bank account is essentially just like a personal bank account, except that it’s solely used for business incomings and outgoings.

The type of business bank account that you get will depend on the amount of features that come along with it.

For example, some business accounts are simply there to let you receive money into the account and spend money from the account, whereas some are a little more complex and may let you issue invoices, conduct payroll and some even have accountancy features that can be used for things such as assisting with your tax return.

Can I use my personal account for my small business?

If you’re a sole trader in the UK and you operate a “small” business, then you are able to use your personal bank account. You can find more examples below of when you need to open a business bank account and when it’s not necessary to do so.

When do you legally need a business account?

You will legally need to open a business account if your business is set up as a limited company or if it’s registered with Companies House in the UK.

As your business is considered to be legally separate from you as an individual, you will need to ensure that you have a separate business bank account to take care of all your business’ financial matters.

However, if you’re operating as a sole trader or partnership, you’re a freelancer or contracting, or doing a “gig” such as an Uber or Deliveroo driver, then you’re not legally required to have a business bank account. 

While these types of businesses don’t have a legal requirement to have a business bank account, that doesn’t mean to say that you don’t necessarily want one. In many cases, it can help to keep your business and personal finances separate so that your incomings and expenditures are easier to manage.

Advantages and disadvantages of a business bank account

Naturally, there are pros and cons of having a business bank account; take a look at some of them below.

Pros

  • You can build a credit rating for your business - this can be a good idea if you might want to take out a business loan in the future in order to prove to lenders that your business has a good credit score.
  • You’ll save yourself time and effort when it comes to the admin side of things as you won’t have to worry about separating spendings and incomings between personal and business purposes.
  • You’ll be keeping everything legal and above board. While you don’t legally have to open a business bank account with some types of business, there may actually be clauses in your personal bank account that state that you’re not allowed to use it for business purposes, so it might be a good idea to just use a business account right from the start.

Cons

  • Opening and operating a business bank account may come with admin fees as well as monthly charges to actually keep the account running, whereas most personal accounts are free to open and use.
  • As you’ll have two (at least) separate bank accounts - one for personal use and one for business use - it means that you’ll have twice as much admin so you’ll have to deal with each account’s cards, passwords, login details, statements and more.

What are the best business bank accounts?

The best business bank account for you and your business depends on the type of thing that you’re looking for, as well as what kind of benefits you want out of your account.

Below, you can find some examples of bank accounts that are considered to be the best for businesses.

  • Starling
  • Tide
  • HSBC
  • Cashplus
  • Santander

What do I need to be able to open a business bank account?

If you’re opening a business bank account as a sole trader or freelancer, then you’ll find that it’s incredibly similar to opening a personal account in that you’ll only need to provide evidence of your address such as a current bank statement or utility bill and some form of ID such as your driving licence or passport.

If you’re operating as a limited company (Ltd) and you’re opening a business bank account, then you’ll need to provide the above, as well as proof that your business is registered at Companies House, plus you might also need to show any relevant tax and VAT registration details.

Before you actually open the account, your provider will inform you of exactly what you need in order to open the account, so just double-check with them if you’re not sure.

Do I need a good credit score?

When opening a business account, your personal credit score will likely be checked to see if you’re eligible so it’s a good idea to keep your credit score as “good” as possible in order to increase your chances of being accepted.

Check Your Score

How does a business bank account affect your credit score?

A business bank account can affect your credit score if your business gets into any kind of debt. While having a business account can certainly help to improve your credit rating if you manage your account well, it can also have a negative impact if you don’t look after your finances.

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