Small business bank accounts: a guide

In a word…YES! It’s not a legal requirement for a sole trader but it is recommended.

NOPE! As a sole trader there’s no legal separation between you the company which makes you liable for the business taxes. No doubt you’ll want to reduce your tax bill by claiming back sole trader business expenses but to do this you’ll have to demonstrate (to the HMRC) which expenses are personal ones and which ones are business expenses. Not an easy task if your personal expenses are mixed up in the same account as your business ones! Keeping your personal and business accounts separate it is definitely for the best.

Yes. As a limited company you’re legally obliged to have a separate business bank account.

You can only take money out in certain circumstances, like take a salary, take dividends or to claim back expense you’ve personally paid to avoid breaking the law so yes, a business bank account for a limited company is essential.

Most banks will ask for the following information: Proof of ID (passport, photo driving license or national ID card) for all named company directors, Proof of address (utility bill, council tax statement, recent bank statement), Full business address (including postcode), Contact details, Companies House registration number (for limited companies and partnerships) Estimated annual turnover. They’ll likely check your personal credit history. You might also be required to provide proof that you have a clean credit and banking history.

If you’re personal credit history isn’t the best, make sure that: You have a solid business plan– which details your financials and projected forecasts and demonstrates that you’re a responsible customer with a good idea. You check your credit history yourself - make sure all details are correct and see if there are any outstanding balances that can be cleared up, such as bills, credit cards, or other balances. You’re on the electoral register and have registered your business with HMRC within three months of the start of trading. To open the account, you’ll have to make an appointment and go into a branch so be sure to have your documents ready ahead of the meeting.

Once you’ve opened an account be careful who have access to it, only give authorised and trusted workers access to the account and the authority to make payments. Check your bank statements regularly, always make sure you monitor all the transactions you make and have a record of receipts to ensure cash flow is managed effectively and you don’t overdraw your account.

A personal adviser who will advise you on the bank’s products including what type of loan facility is most suitable for your business needs. Low charges. expect to pay between £5 - £10 per month to maintain a business bank account. A fee-free introductory period. Manage your finances through an App. Telephone banking. Overdraft facility. Foreign transactions. Payroll services. Paying employees can be complicated, your bank can complete records and HMRC filings on your behalf, automatically take care of statutory payments such as sick pay, maternity pay, and student loans, and even produce payslips. Protection and business insurance.

Consider these points: How competitive are its fees? What are the other charges? Any free period for startups or new customers? What features does it offer for small businesses? How is its customer service? You’ll want to be able to take payment from customers, pay for materials and keep an eye of your money on the go so you’ll want to consider whether the account has: A mobile app for making payments on the go, Free or low-cost monthly account fees, Low transaction fees, Overdraft facility, Free cash withdrawals.

You’ll likely have to have at least 12 months trading behind you before you can get a loan from a high street back – see our article on Funding for more information. Assuming you’re ready to apply for a loan, we’ll say 1 thing…Be prepared! Have a detailed business plan to show the bank your project in detail and include detailed, realistic forecasts and financials to demonstrate how and when it will be a success and they will get their loan (and interest) back! Support your application with evidence from your trading so far… convince them with hard facts that your business is worth investing in.

See our comparison table above to see which account best suits your business needs.

A digital only bank with no high street stores. There are loads available and they’re on the up so if you’re aren’t too caught up on a traditional high street bank and don’t mind dealing with things online then banks such as Monzo, Tide, and Starling offer a degree of transparency and control that isn’t on offer with high street alternatives.

You can set the account up on your phone! You’ll get instant spend notifications to your phone, integration with your accounting software, and the ability to instantly freeze your card if it’s misplaced or stolen, then unfreeze it if it’s recovered. No more cancelling a card that you subsequently find 10 minutes later in your other jacket. Something to think about!

Of course, you can and you should shop around but like any deal bear in mind that before closing your old account you’d need to repay any overdraft balance and it might have a temporary impact on cashflow so it's worth accounting how long this may take when preparing to switch bank accounts.