A business bank account is a great way of storing and managing all your company’s income and outgoings. If you’re a small business owner, a business bank account helps separate your personal cash flow from that of your company.
“But why not just use your personal bank account for your business?”
Table of contents
Continue reading to discover:
- If you can use a personal bank account for your company.
- The features of business bank accounts.
- Which documents you need to open a business bank account.
- How to choose a business bank account.
- The best free small business bank accounts.
Can you use your personal bank account for your business?
The short answer is yes. That’s because sole traders are under no obligation to set up independent business accounts. That said, it’s a good idea to have one current account for personal banking and one for the business. This will help you keep your business cash flow separate from your own.
Limited companies legally need a separate account, which should be a designated business account if possible. That’s because the company is deemed to be legally distinct and separate from you.
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Features of business bank accounts
Most business accounts differ from individual current accounts. That’s why it’s worth understanding what you’re signing up for beforehand. For example, there might be costs involved in opening a business account that you may not have incurred for your personal account. Although accounts vary from one provider to another, below are some of the features you should consider when shopping for business accounts:
- Introductory offers – Providers may offer short-term rewards for signing up with them such as competitive interest rates, zero standing charges or cashback.
- Standing charges – Certain business accounts charge a monthly or quarterly fee for banking with them.
- Transaction charges – These charges are made for the handling of money moving in and out of your current account. Some accounts might offer lower transaction fees for making and receiving overseas payments.
- Internet banking – While most business accounts provide internet banking, there are some exceptions so it’s best to make sure beforehand if it’s essential to your company.
- Apps – Many business accounts have dedicated apps that integrate with other services such as accounting and invoicing software.
- Debit and credit cards – You’ll usually be able to get several bank cards with the account, giving you and any staff access to company funds.
- Interest rates – Higher interest rates ensure greater returns on your savings.
- Branches – Some business bank accounts are online-only so it may be worth finding an alternative if this is a priority.
- Protection – Some business accounts even offer insurance and support in the event of fraudulent activity.
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What documents do you need to open a business bank account?
Opening a business bank account in the UK is a pretty simple process. All you need is all your documents in one place before you apply. You’ll likely need the following:
- Proof of your identification like your driver’s license or passport.
- Proof of your address such as a utility or council tax bill, or a statement from your personal bank account.
You’ll also need the following information about your business:
- The full name of the company.
- The business’ postal address.
- The business’ main phone number and email address.
- The business’ Companies House registration number.
- The approximate annual revenue.
How to choose a business bank account
It’s difficult to say which bank offers the best small business accounts. There are so many great accounts out there, each with their own features.
One of the things most business owners should look for is lower costs – and many banks offer fee-free banking for the first 12 to 18 months. However, there’s usually a significant hike in fees once the introductory period is over. It’s worth checking how much these fees will cost your business in the long term.
You should also check how flexible the account is. Just like a mortgage, you should look for the flexibility of switching to a new account once the fees start to stack up or the initial rate is over.
It’s also worth considering which business features your company could benefit from such as earning cashback on your purchases or interest on your balance.
Best free small business bank accounts
If you’re a new business or even just switching to Virgin Money, you’ll get 25 months of fee-free banking. To be eligible, you need to be a new business opening an account within 12 months of starting up, or a small business with a turnover of less than £6.5 million.
After the fee-free period, you’ll be switched to the business tariff – it’s £6.50 a month, excluding charges for other transactions like Direct Debits and cash paid in. That said, you’ll save £162.50p in just over two years. Virgin Money also offers specialist relationship management and an optional overdraft.
If you’re looking at a challenger bank, Tide and Starling Bank have some of the best online business bank accounts. Tide has a dedicated mobile-first business current account with three different price plans, from free to £49.99 a month while Starling Bank has a free account with options for both limited companies and sole traders.