If you’re starting a business, one of the key decisions you’ll need to make early on is whether to open a business bank account. While it might seem easier to use your personal account, having a dedicated business bank account is essential for managing your finances effectively and complying with legal obligations.
In this guide, we’ll explore when you need a business bank account, why it’s recommended even for small businesses and some of the best offers from high street and challenger banks.
Some of the links in this article are affiliate links. This means that if you click on the link and make a purchase, we may receive a small commission at no extra cost to you.
Do I legally need a business bank account?
Whether you are legally required to have a business bank account depends on the type of business you operate.
1. Sole Traders
If you’re a sole trader, you’re not legally required to have a business bank account. You can use your personal account to manage your business income and expenses. However, even as a sole trader, there are significant advantages to keeping your personal and business finances separate, which we’ll cover later.
2. Limited Companies
If your business is a limited company, then yes, you must set up a business bank account which is totally separate from your personal finances.
3. Partnerships
The need for a business bank account depends on your type of partnership:
- General partnerships: You’re not legally bound to open a separate business bank account, but having one can make managing your finances much easier.
- Limited liability partnerships (LLPs): Since LLPs are separate legal entities, you must have a business bank account to keep your finances compliant.
Benefits of opening a business bank account
Regardless of whether it’s legally required, opening a business bank account offers numerous advantages that can help streamline your operations and make managing your business finances much easier.
1. Separating personal and business finances
Mixing personal and business transactions in one account can lead to confusion when tracking income, expenses, and profits. A dedicated business account ensures that all your business transactions are in one place, making it easier to manage your accounts, pay bills, and track cash flow.
This separation also simplifies your accounting process, especially when filing your self-assessment tax return or preparing company accounts. Clear records mean less time spent sifting through transactions to identify business expenses, reducing the likelihood of errors or missed deductions.
2. Presenting a professional image
A business bank account provides credibility and professionalism, especially when dealing with customers and suppliers. Having your business’s name on bank transfers and invoices helps build trust, showing that you’re operating as a legitimate business entity. It also ensures that customers aren’t confused by seeing a personal name on transactions.
Additionally, suppliers may expect payments from a business account rather than a personal one, so having a dedicated account can smooth business relationships.
3. Accessing additional business banking services
Business accounts offer additional features and services designed specifically for businesses. These may include:
- Overdrafts and credit facilities: Many business accounts offer access to finance solutions such as business loans, overdrafts, or credit cards, which can help with managing cash flow or funding expansion.
- Multiple user access: Business accounts often allow multiple people, such as directors or finance staff, to access the account and manage transactions, making it easier to delegate financial responsibilities.
- Accounting integrations: Many business banks provide direct integration with accounting software like Xero or QuickBooks, automating bank reconciliation and saving you time.
These features make business banking more flexible and efficient for managing your company’s financial needs.
4. Building a credit profile
Opening and using a business bank account can help your company build a credit profile. This is particularly important if you plan to apply for loans or credit in the future. Lenders and creditors will often look at your company’s financial history to assess whether you are a reliable borrower. Having a dedicated business bank account that shows clear records of income, expenses, and healthy cash flow can improve your chances of being approved for credit or finance.
When might you not need a business bank account?
For some very small businesses, especially those operated as side hustles or sole proprietorships with low turnover, opening a business bank account may seem unnecessary. If you prefer to keep things simple and only handle a few transactions, you might consider using your personal account for the time being.
However, as your business grows, the complexity of your finances is likely to increase. At that point, switching to a business account will help you maintain better control and avoid the hassle of having to separate business transactions later.
Reminder, if you’re incorporating today as a limited company, then you need one from the beginning.
Choosing the right business bank account
When deciding to open a business bank account, consider the following factors to find the right one for your needs:
- Fees: Many business accounts charge monthly fees or transaction fees. Make sure to compare costs and services to find a plan that suits your budget.
- Features: Look for features that will help you manage your business more effectively, such as accounting software integrations, multi-user access, or credit facilities.
- Customer support: Consider the level of customer service offered by the bank, especially if you think you’ll need ongoing support for managing your account or obtaining finance.
- Online and mobile banking: For convenience, many businesses prefer a bank that offers robust online and mobile banking services so that transactions and account management can be done remotely.
Best business bank accounts for startups
Our top recommendations for business bank accounts include:
1. Monzo Business Account:
Fees: No monthly fee for the basic account. A fee applies only when you upgrade to premium features such as Pro or Team.
Features: User-friendly app, spending insights, automatic tax savings, and ‘pots’ to manage money. Accept payments via cheque, cash, online, and contactless methods, including QR codes and invoices. Expense cards with spending controls for team members.
Bonus: Instant notifications, expense tracking, FSCS protection up to £85,000, and access to loans, overdrafts, and interest-earning savings.
2. Revolut for Business:
Fees: Free tier available, with paid plans offering additional features. Monthly or annual billing options depending on business needs.
Features: Multi-currency accounts, seamless international transactions, and the ability to send money to 150+ destinations while accepting payments globally.
Bonus: Great for businesses with overseas contractors or clients. From the second account you open, you’ll have access to essential business resources, including physical and virtual cards for your team, IBAN and SWIFT/BIC account details for receiving payments, and the ability to exchange 25+ currencies at the interbank rate.
3. Barclays Business Account:
Fees: No account fees for the first 12 months, followed by a simple monthly tariff.
Features: User-friendly app with free accounting software, 24/7 business support, access to a network of over 900,000 businesses, and solutions to accept Barclaycard payments.
Bonus: Access to Eagle Labs accelerator programs, cashback, and rewards with Barclaycard business credit cards.
4. Starling Bank:
Fees: No monthly fees or UK payment charges.
Features: Mobile and online banking with in-app card locking and personalised card settings. Free ATM withdrawals, no fees abroad, and 24/7 customer support. Cash deposits available at the Post Office for a 0.7% fee (£3 minimum), and cheques can be deposited digitally in-app for free.
Bonus: Access to add-on services tailored to your business needs, including the business toolkit, Euro business account, and US dollar business account.
5. Tide:
Fees: No monthly fees, but low transaction and ATM fees may apply.
Features: User-friendly app with 24/7 support, cash deposits at Post Office and PayPoint locations, automatic income and expense categorisation with custom labels, and the ability to generate and send professional invoices.
Bonus: Easy international payments, expense and virtual cards for managing business spending, access to business loans, built-in accounting software, and automated cash flow forecasts.
6. Wise
Fees: No monthly fees, only a one-off charge.
Features: Send and receive money in 40+ currencies with mid-market exchange rates, 24/7 customer support, secure two-factor authentication, and customisable controls with biometric security.
Bonus: Funds are safeguarded under FCA regulations, and Wise business credit cards are available for overseas use with no foreign transaction fees and 0.5% cashback.
