How to choose a business bank account

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.

Can I use my personal account for business?

This will depend on the type of business your run. Sole traders and the self-employed that don't 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 bank's terms.

Do I need a business bank account as a sole trader?

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 don't allow your personal account to be used for business purposes, so make sure you check the bank's terms for your personal current account first.

Does a partnership need a business bank account?

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.

Do I need a business bank account for a limited company?

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.

What is the difference between a business bank account and a personal bank account?

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 it's 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.

Business savings 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 don't 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.

Benefits of business bank accounts

Business customers will obtain significant advantages of opening a business current account including:

• Your business transactions, i.e. business income and outgoings are kept separate and allow you to keep your business accounting more organised.
• A business bank account lets you apply for a business credit card and a business debit card, and should make it easier to apply for a business loan.
• It will give you the ability to process salary payments.
• It will add credibility and professionalism to you and your business.
• It can help when you complete your tax return and save time as business payments etc. are separate.
• It may ensure you don't break the T&Cs of your personal bank accounts.
• You can build up a business credit rating.
• It may provide you with a business overdraft facility.
• You may be able to carry out transactions using foreign currencies.

What do I need to open a business account?

To open a new business bank account, you’ll need to provide documentation as follows:

• Proof of identification for all company directors – a passport or driver’s licence will suffice.
• Proof of address such as a bank statement or utility bill.
• Your business details, including the registered address and contact details of your business as well as the Companies House registration (for limited companies and partnerships).

Business bank account fees and overdraft charges

Account fees differ from bank to bank, so it's 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.

What to look for when comparing business accounts

There are different types of business bank accounts for different businesses. It's worth spending time to compare business bank accounts and looking for the features of each.

Here's 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 doesn't 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.

Summary

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 isn't 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 03300 886 686, or email on enquiry@dnsaccountants.co.uk.

About the author

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.