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Keeping your finances organised is key to running a business efficiently – and that includes how you do your banking. Taking time to choose the right account for your business could be time well spent.
Having a business bank account instead of using your personal account for work can mean simpler, more streamlined management of your finances. Extra features, like expense management and invoicing software, can also be part of the package.
In this helpful guide, find out whether you need a business bank account for your business structure, how you access funding if you need to, and the impact of keeping your business and personal finances separate.
What is a business bank account?
Why do I need a business bank account?
Who can open business bank account?
Does a sole trader need a business bank account?
Does a limited company need a business bank account?
Does a partnership need a business bank account?
Can a personal bank account be used for business?
How many bank accounts should a business have?
Can I switch my business bank account?
What is a business bank account?
A business bank account should only be used for business transactions, which means you keep your personal finances separate from business income and spending.
Business bank accounts work much like a personal bank account, which lets you see your balance, set up payments, have use of a debit card and be paid. However, you could also get extra features with a business bank account that can help with running a business.
Some of these may include categorised spending, accounting and invoicing software integration, expenses tracking and customer support, for example.
One common difference from a standard personal account is that you usually pay a monthly or annual fee to use a business bank account. You may also pay charges for certain transactions or for exceeding certain transaction limits. Consider these additional costs as a factor when setting the price points for your goods and services.
Business bank account charges can vary depending on the services and tools the account offers, as well as the provider you choose. It’s sensible to compare accounts across providers before making a decision.
Why do I need a business bank account?
You’ll need a business bank account if you are a UK limited company registered with Companies House. This is because a limited company is a separate legal entity from the business owners and financially independent of them.
Sole traders aren’t legally required to have a business account. However, some personal bank accounts don’t allow business transactions, so check the terms and conditions.
Even so, there can be advantages to keeping your business and personal finances separate, such as setting money aside for income or corporation tax, VAT or national insurance payments, or if your business is audited.
It’s also important to know that sometimes you need a business bank account for lenders to consider you for business funding, such as loans, invoice finance and credit cards.
Setting up a business bank account can help you understand how your business is performing, your cashflow or growing your business in the future. It can also build your business’s credit history, which in turn could increase your chances of being approved for a loan.
Who can open a business bank account?
To open a business bank account, you must be one of the following:
- a sole trader
- a partner in a limited liability partnership (LLP)
- a company director of a limited company
You’ll need to be at least 18 years old and have a UK address. There may also be specific turnover or trading requirements, along with other criteria your business needs to meet. These will depend on the provider and the account plan.
Does a sole trader need a business bank account?
If you are a sole trader, you don’t have to open a business bank account by law, but it’s sensible to consider it. This is because keeping your business and personal finances separate can help you keep track of payments and understand how your business is performing. You’ll be able to have a view of what you spend and what your incomings are.
A business bank account can also make tax reporting more straightforward and sharing data with an accountant easier. What’s more, having a business bank account which offers access to a range of products and services can prepare you for your business growing in the future, or a change in business structure.
Alongside other key considerations when you set up as a sole trader, such as writing a business plan, it’s important to decide how you’ll manage your finances. If you are a sole trader, you don’t have to open a business bank account by law, but it’s sensible to consider it. This is because keeping your business and personal finances separate can help you keep track of payments and understand how your business is performing. You’ll be able to have a view of what you spend and what your incomings are.
Does a limited company need a business bank account?
If you run a limited company, you must have a business bank account. This is because your company’s money needs to be kept separate from your personal finances.
As well as helping your business build a credit history and access finance, a business bank account can include useful tools and features, such as accounting and payroll software integration, and receipt capture. You can also get insights designed for businesses, such as live profit and loss figures. Some may offer access to a relationship manager for certain turnover thresholds or business needs.
Does a partnership need a business bank account?
It depends on the structure of the partnership. If you are a partner in a limited liability partnership (LLP), you will need a separate business account. This is because the business is a separate legal entity from the individual partners.
But if you are in a general partnership, made up of two or more people, you don’t have to have a business bank account. The partners’ shares of the profits are taxed as personal income, so the business is not legally separate from the partners. General partners share in the profits and liabilities of the business.
Even so, a general partnership may benefit from having separate business finances, held all in one place. And it can be a good idea if, for example, you want to keep track of any expenses. While not a legal requirement, it is advisable to draw up a partnership agreement, or deed, to agree the terms of your partnership. Some banks may require such a partnership agreement before you engage their services.
Can a personal bank account be used for business?
You may be able to use a personal bank account for business, provided you’re not a limited company or LLP. You may choose to do this because you want just one banking login, for example, or if you’re a sole trader.
Whether you can do this depends on the terms and conditions of your personal bank account. You might also want to consider whether a business account will look more professional for your clients and customers. This is because you’ll be providing your business bank account details for payment, rather than your personal account.
How many bank accounts should a business have?
It may be possible to hold multiple business bank accounts, and eligibility criteria will be given by the provider. That might mean using one for savings and another for daily transactions, or one for payroll and another for accounts receivable, for example.
More than one account may increase your time spent on admin. It can also mean you pay multiple maintenance fees.
Also, it isn’t always possible to open more than one business bank account with one provider, so check the small print.
Make sure you are eligible for a business bank account before applying. Too many application rejections or applying for too many bank accounts over a short space of time might negatively impact your credit score. Additionally, if approaching a bank for funding support they will need to be able to clearly see where business income is deposited in order to assess the affordability to your business. This may be another good reason to open a business account that is separate from your own personal finances.
Can I switch my business bank account?
It’s possible to switch a business bank account. This may be to a provider that allows multiple bank accounts or users, or one that offers a better deal, more support or expertise, or smarter features for your business.
Introductory offers for switchers may also bring added benefits for your business. As with any financial consideration, make sure you are clear on monthly costs, cost per transaction and payment limits.
Also consider the most frequent transactions you make, such as bank transfers, foreign currency transactions or cash deposits, and whether the account has any charges for those.
If you are making a full switch and both providers offer the Current Account Switch Guarantee, the process should be straightforward. Over 50 banks and building societies are part of the switch guarantee scheme, which ensures that your new bank will switch over your payments and transfer your balance, while your old bank closes your old account for you. Simply open a new current account, select your switch date, and your new bank or building society will take care of the rest. This hassle-free service is free to use and convenient.
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Disclaimer
This article is intended as general information only and does not constitute advice in any way. For any specific questions, you may wish to consult a qualified accountant.
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