There's plenty to think about when starting a new business. As well as all the official arrangements — like applying for licences or permits and registering as a sole trader, limited company or partnership — you have numerous other things to consider, such as negotiating with suppliers, deciding how many staff to employ, putting a marketing plan in place to help establish your brand and setting up a business bank account.
With so much to do as a new business owner, you’ll be relieved to know that opening a start-up business account with a bank is a relatively straightforward task. An account can be opened in as little as one week and you’ll usually only need to supply a few details in order for the bank to do their checks.
In this guide, we’ll go through exactly what you need to do to set up a bank account for your business, explain why it’s a good idea to open one and answer any other questions you might have about business bank accounts.
The first thing to do is decide who you want to bank with, ensuring that you meet their eligibility criteria, before gathering the necessary documents and providing any other information they may require in order to do their checks on you and your business.
Whether you open your business bank account online or in your local branch is usually up to you, however, some banks prefer you to meet with them in person, while others only operate digitally, so you’ll have to apply online.
Continue reading for more information on business bank accounts.
What’s the difference between a business bank account and a personal bank account?
Business bank accounts aren’t too dissimilar to personal bank accounts. They work in much the same way, but business accounts are only available to companies, sole traders, partnerships, clubs, societies and charities.
With a personal bank account, you’re receiving and paying out money in your own name, with features that enable you to manage your personal finances, while a business current account allows you to receive and pay out money in your company’s name, with business-targeted features like payroll and invoicing.
Business bank accounts often come with monthly fees, whereas most personal bank accounts are free.
Do I need to set up a business bank account?
You’re legally required to set up a business account if you’re running a limited company, because your company is legally a separate entity from you as an individual, and needs to be managed separately.
If you’re self-employed or a sole trader, you can use your personal bank account for business transactions, because the tax office treats your personal income and your business in the same way. Partnerships can also use a joint personal account to handle business finances.
Many self-employed people, sole traders and partnerships do choose to open business bank accounts, though, for several reasons:
- Having a business account makes it easier to apply for business loans and government schemes
- Once you open a business bank account, you can apply for a business credit card
- It’s easier to notify HMRC about your business income
What’s the best business bank account?
With such a wide variety of business bank accounts to choose from, it’s understandable to feel overwhelmed when trying to decide which one to go with.
No one account is the best. The best one for your business depends on how you manage your company’s finances and what features you require.
To help with your decision, here are some factors to consider:
- Account fees — With some business current accounts, you have to pay a monthly or quarterly fee and you may also be charged for certain transactions, like making cheque payments or paying in cash
- Introductory offers — Look out for offers like competitive interest rates or free banking for opening an account
- Overdraft charges — If an overdraft would be useful for your business, check how much the charges are
- Interest — A good interest rate is beneficial if you’re always in the black
- Branches — Some banks only operate online, so if you like to visit in person, make sure the business bank account you choose has physical branches
- Online banking — If you like to do your business banking online, check that the account comes with internet banking
- Business support — Newer business owners may benefit from an account that offers access to tax and business advisors
What are some of the requirements banks need to set up a business account?
To open a business account, a bank will usually require you to be aged 18 or over, be a sole trader, partner or company director and have a business that is based and operates in the UK.
What documents are needed to open a business bank account?
Some of the documents you’ll need to provide when you apply for a business account include:
- Proof of ID for everyone included in the application — this will usually be a passport or driver’s licence
- National Insurance numbers and three-year personal address history for everyone included in the application
- Proof of address, such as a utility bill sent within the last three months
- A bank or credit card statement in the name of the business and sent to the trading address in the last three months
- Contact details for the primary account holder
- A copy or photograph of your signature
- Details about your business, including its registered address and contact details, your expected annual turnover, tax information and, if you have a limited company or partnership, the Companies House registration
- A letter from HMRC relating to your business, dated within the last 12 months
- A letter from regulators relating to your business (for example, the Financial Conduct Authority (FCA) or Law Society), dated within the last three months
What are the benefits of having a business bank account?
A business account has many benefits, such as:
- It’s an easy way to keep your business and personal transactions separate, which makes it easier to do your tax returns
- You can track your income and expenses and create a clear paper trail for your business
- Invoices can be paid directly into your business account
- You can process salary payments
- You can carry out international payments
- You can carry out credit checks on suppliers and businesses you work with
- Banking support is targeted toward businesses
Can I open a business bank account with bad credit?
When you apply for a business account, some banks will ask for proof of a clean credit history.
If you have a bad credit history, you may still be able to open a business account with a different bank, however, it’s likely to be more difficult — especially if you have a County Court Judgement (CCJ) or you’ve been bankrupt within the last five years.
Business owners with bad credit can either apply for a business account with a bank that doesn’t run credit checks or try to open a business account with their current personal account provider.
You can improve your credit score by paying back any money you owe, not missing payments and ensuring you’re registered on the electoral roll. This will increase your chances of being approved for a business bank account in the future.
What else do I need to know about setting up a business bank account?
Many banks offer business advice. If advice or support is something you think you’ll need, consider what type of support you’ll benefit from the most. Some offer a telephone helpline, while others provide an online service. Decide which method you prefer and make your choice accordingly.
If the business account you’ve chosen is completely free, there may be limits on how much you can pay in and take out, so be sure to check this before you apply. Similarly, you should check the limitations of any overdraft facility on the account.
If you’ve chosen a business bank account with an introductory period of free business banking, remember to check how much you’ll be paying in fees once the free period is over.
You should be using your business account for all your business transactions, including payroll, invoices, cheque deposits, cash withdrawals, electronic transfers, direct debits and standing orders. Your business account is for business purposes only, not for personal banking.
Summary
Setting up a business account with a bank is a relatively straightforward task. First, you should decide who you want to bank with and ensure you meet their eligibility criteria. Then you need to gather the necessary documents and provide the bank with any other information they may require.
You can decide whether to open your business bank account online or in your local branch, however, some banks prefer you to meet with them in person, while others only operate digitally.
To open a business account, you’ll usually need to be aged 18 or over, be a sole trader, partner or company director and have a business that is based and operates in the UK.
When you apply for a business account, some of the documentation you might have to provide includes proof of ID, National Insurance numbers and three-year personal address history for everyone included in the application, proof of address, a bank or credit card statement in the name of the business, contact details for the primary account holder, a copy or photograph of your signature, details about your business, a letter from HMRC relating to your business and a letter from regulators relating to your business.
If you have a bad credit history, you may be able to open a business account with your current personal bank account provider or with a bank that doesn’t run credit checks.
When setting up a business bank account, consider what type of support you’ll benefit from the most, check whether there are any limits on how much you can pay in and take out of the account and what the fees are if you’ve chosen an account with an introductory period of free banking.
You should be using your business account for business purposes only, not for personal banking.