Do I need a business bank account and if so, what do I need to open one?

Do I need a business bank account and if so, what do I need to open one?

If you have just started your own business or you are a freelancer with an increasing number of clients, it may be wise to set up a business bank account. They can be a helpful way of keeping your business finances in order and separated from your personal account. If you are newly self-employed, it can be tricky to know the dos and don’ts of business management.

A business bank account is not too different from your regular bank account; it is just solely for business income and expenditure.

Here, we advise on whether you need to open a business bank account and what to do.

Do I need a business bank account?

Needing to open a business account depends on whether your business is considered a separate legal entity to you. If you have set up a limited company, meaning it is registered at Companies House, then you will need to open a business bank account. This is because the company is legally separate from you and therefore you should not be using a personal account for its expenses.

You will not have to set up a business bank account if your business is not a separate entity. For example, if you are a sole trader, freelancer or contracting not through a limited company. If you are doing gig work, through a company like Uber or Deliveroo, you do not need to either, as you and your business are considered one. Even if this is the case, you can still open a business bank account to give you a better view of your work expenses and total income.

Benefits of opening a business bank account

Opening up a business bank account can be very beneficial to you and your business. Here are some of the top advantages:

Your setup will be more professional

Not only will you look more professional, but you will save time on admin when it comes time to do a tax return for HMRC. Rather than sorting through all your personal records, everything you need is in one account and easily accessible.

Business accounts can improve your credit score

Another benefit is that you will build up a credit rating for your business so if you ever need a loan or credit card, you will more likely be accepted if you have a solid credit history. You never know when you might need to borrow money so ensuring that your credit score is great will give you more options.

You will maintain a good relationship with your bank

Lastly, you will not run the risk of breaking your bank’s terms and conditions. There is a lot of information in the bank’s small print that you may not be aware of and it will usually say that you cannot use it as a business account. If you are a freelance writer, for example, you probably will not break these rules. However, if you are running a bakery from your kitchen and taking a lot of cash transactions, your bank may close your personal account or ask you to open a business account.

What do I need to open a business account?

Once you have decided if you need a business account you will need to find a bank, so research the best banks for business accounts and get started. It will usually take between one and four weeks for your bank account to be ready. You can decide whether you want a bank with a nearby branch or if you are happy with an online bank.

In order to open a business account, you will need:

  • Proof of identification
  • Proof of address
  • Business address and contact information
  • Companies House registration information (If a limited company)
  • How much money your business is expected to make

Initially, you may not have to set up a business account but as your business grows, this step may be required. For example, if you are going to register your business as a limited company, if your business is processing a lot of transactions or if you want to take out a business loan, you will need a business account.

If you are a small business owner and you are not a limited company, you may want to consider opening a business bank account if you intend to take on employees in the near future or if you want to take out a business loan.

Just like a personal account, a business account will allow you to easily set up direct debits and standing orders and use an overdraft. The main difference is that banks will often charge fees for a business account, usually between £5 and £8 per month.