If you are self-employed or running your own business then having a business bank account can simplify things as it will allow you to keep your personal finances separate from your business finances. If you run a limited company, it is a legal requirement to have a separate business account.
In this blog we give you all the details you need to consider when choosing a business bank account.
This will depend on the type of business your run. Sole traders and the self-employed that dont run a limited company can use a personal account for business. However, many banks stipulate that individual accounts can only be used as a personal account so check your banks terms.
As a sole trader or an individual who is self-employed, you are not legally required to have a business bank account. You may be able to use your personal account for business payments and purchases. However, it can be easier to manage and keep business finances separate if you have a separate bank account for your business purposes.
Having a business bank account will make the organisation of your personal and business income and expenditure far easier and can help you to avoid over spending or running out of money to run your business or pay your bills. You will also look more professional if you invoice people with a business bank account, rather than a personal account.
Although you can use your personal bank account for business purposes, be aware that some banks dont allow your personal account to be used for business purposes, so make sure you check the banks terms for your personal current account first.
General partnerships that are not limited or limited liability partnerships do not need a business bank account. If your business is a limited partnership or a limited liability partnership, you are legally required to manage your finances through a business bank account.
When a business owner has incorporated i.e. registered at Companies House as a limited company, your business is a separate legal entity and you will, by law, require a business bank account. You should never use personal accounts for limited company use.
A business bank account is similar to a personal bank account, but it is meant for business transactions and will sometimes offer benefits over and above personal accounts.
Understanding the difference between a personal bank account and a dedicated business bank account is important before you make a decision. Tracking your business finances separately, being able to see your business cashflow, business expenses and transactions is integral to running and managing a small business. This is all a lot easier with a separate business bank account.
Business bank accounts normally charge a monthly fee for the use of the account, so its worth shopping around for the best deal.
Having separate accounts will also make it easier when you come to do your personal tax return and accounts.
A business savings account is often offered with business current accounts. Many businesses use a business savings account to separate things like their corporation tax and VAT payment cash from their day to day working capital.
Having a business bank account can help manage your cashflow and also ensures that you dont spend money that is put to one side to pay your tax bills. It is worthwhile setting up a bank transfer each month for any VAT, Corporation Tax or other tax bills.
It may also be worthwhile keeping emergency business funds in separate business accounts for any periods that you need some extra cash. This may be particularly pertinent if your business is seasonal. Saving into a separate account when you have a good flow of work can help you.
Our advice would be to have savings accounts separate from working capital to simplify daily financial management.
Business customers will obtain significant advantages of opening a business current account including:
To open a new business bank account, you’ll need to provide documentation as follows:
Account fees differ from bank to bank, so its worth shopping around. Many banks offer free introductory offers and most banks then charge a standard monthly charge and then additional account charges for some transactions. For example, other fees may apply for things like foreign transactions, bulk deposits and CHAPS payments.
There are different types of business bank accounts for different businesses. Its worth spending time to compare business bank accounts and looking for the features of each.
Heres what to look for:
Account fees
You will often get an introductory offer for a free business banking, but then after the introductory offer, they will charge monthly fees, while some also impose fees for different types of transactions. Look carefully at the ongoing fees.
Overdraft
Often business accounts will offer a small overdraft for free, which can be useful if you have tight cashflow and need the occasional buffer.
Transaction limit
If you have large transactions in your business, look out for an account that doesnt place transaction limits.
In-credit interest
Some accounts will earn you interest on spare money sitting in your business account balance.
Convenience
Many business bank accounts offer great apps to pay invoices, transfer money and keep track of your business finance.
Link to your accounting software
Look for an account that will link directly to your accounting software to minimise administration and manual intervention.
Business bank accounts are a legal requirement if you run a limited company. If you’re self-employed or a sole trader, opening a business bank account isnt legally necessary but is an easy way to keep your business finances separate from your own personal finances.
Here at dns accountants, we can help and advice on the best business bank accounts for your business, contact dns accountants today on 0330 088 6686, or email on enquiry@dnsaccountants.co.uk.
Any questions? Schedule a call with one of our experts.
Sumit Agarwal Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.
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