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- Do you need a business bank account? Key rules, benefits and FAQs
Do I need a business bank account?
Discover which types of businesses must open a business bank account and the benefits of doing so.
Opening a business bank account can help you and your company keep personal and business finances separate, which can be critical when it comes to filing your tax returns and assessing how well your business is performing.
A business bank account can give you access to financial tools and features that you typically won’t find with personal accounts. These tools aim to make it easier for you to manage your company’s money.
For a lot of businesses, it’s mandatory to open a business bank account. Whether this is the case depends on the structure of your business, as this guide explains.
Key takeaways
You must set up a business bank account if you’re a limited company or limited liability partnership
Sole traders don’t need to have a business bank account, but should consider one if they want to keep business and personal finances separate
Business bank accounts offer a range of tools and services to make managing your financial transactions and tax returns much easier
Holding a business bank account makes your business look more trustworthy and helps you build business credit
Choose the best business bank account for your company with features including no set up fees.
Who needs to open a business bank account?
Whether you need a business bank account depends on your business structure and how you operate.
You need a business bank account if:
You’ve set up a limited company and registered with Companies House
Your personal bank account doesn’t permit business transactions
You want to build a business credit history
You want access to invoicing tools and accountancy software that you can only find with business accounts
You want to project a more professional image to customers and suppliers
You don’t need a business bank account if you’re a sole trader, gig worker or freelancer and your finances are straightforward.
Do I need a business bank account as a limited company?
You must open a business bank account if you are trading as a limited company. This is because the company is a separate legal entity from its owners, and you must keep business finances distinct from those of the owner or director.
Many providers offer business bank accounts designed specifically for limited companies, with some even helping you to register your company with Companies House when you open your account.
Do I need a business bank account for a partnership?
Whether you need a business bank account for a partnership depends on the type of partnership you’ve established.
If it’s a limited liability partnership, you must open a business bank account because the business and its owners are distinct legal entities. The same applies to limited partnerships, which combine general partners and limited partners.
However, if your business operates as a general partnership, the partners share profits and manage the business together. Because the business is not legally distinct, it’s not a requirement to open a business bank account, even though there are plenty of benefits for doing so.
Do I need a business bank account as a sole trader?
It’s not mandatory to open a business bank account if you are a sole trader. This is because there is no legal distinction between your personal and business finances. You and your business are one and the same, which means you can use a personal bank account to manage your business finances, provided your bank permits this.
However, using your personal account for business transactions can make it trickier to work out what’s what when it comes to filing your tax returns.
Read more:
When is a business bank account required in the UK?
As a reminder, the table below outlines which businesses must have a business bank account:
| Business structure | Required to have a separate business bank account? |
|---|---|
| Limited company | Yes |
| Limited liability partnership (LLP) | Yes |
| Limited partnership (LP) | Yes |
| General partnership | No |
| Sole trader | No |
10 benefits of having a business bank account
Some of the key benefits of opening a business bank account are as follows:
Easier financial management – Having a separate business bank account makes it easier to track payments from clients and monitor how much you’re spending on expenses, helping you budget better
Simplifies your tax obligations – Maintaining a clear record of income and expenses helps you calculate profits and losses, and ensures accurate tax returns. Many accounts let you create separate pots, so you can ring-fence the money you need to set aside for HMRC
Your business looks more professional – Clients can pay into a bank account labelled with your company name, rather than your given name, helping your business appear more trustworthy
Additional features – Many business bank accounts give you access to invoicing tools and accounting software to make life a little easier
Builds business credit – Establishing a business credit rating can help you to secure business loans and credit cards in the future
Business support – Some business bank accounts give you access to specialist support, such as an account manager or a dedicated customer services department
Access to new opportunities – Your bank might also organise networking events and workshops that you can attend to meet new contacts and help your business expand
Overseas transactions – Some business bank accounts offer fee-free spending abroad, making them ideal if you regularly need to travel overseas. Some also include low-fee international transfers, which is useful if you need to send payments abroad
FSCS protection – Most business bank accounts offer protection under the Financial Services Compensation Scheme, which covers funds up to £85,000 in the event of a bank collapse. Check that your chosen bank is FSCS-protected before opening an account
You’re ready for scaling up – If your business grows, you may need access to extra services such as payroll or bulk payments. If you start using a business bank account soon after setting up your company, you can add these features later
Can I use a personal account for my business?
You can only use a personal bank account for business if you operate as a sole trader, freelancer or general partnership. In these instances, you can use a personal bank account as long as your bank doesn’t object – if it does, it could close your account.
However, using a personal account makes it more difficult to keep track of your business transactions, and you could be missing out on all the benefits mentioned above.
Should I open a business bank account?
Before opening a business bank account, assess your specific requirements to see whether you need one.
Remember that if you trade as a limited company, limited partnership or limited liability partnership, you have no choice – you must open a business bank account.
If you operate as a sole trader, freelancer or general partnership, there’s no requirement to open a business bank account. But there are many reasons why it can be beneficial to have one.
Whether you choose to open a business bank account might depend on how complex your finances are, and whether you want access to additional tools and features that could help you budget and file your tax returns accurately and on time.
FAQs
What is a separate legal entity in simple terms?
A separate legal entity means that a business has its own legal identity. It’s separate from the people who own or run the business, which means its money, debts and responsibilities are separate from your personal ones.
Limited companies are separate legal entities. This means the company earns the money, not you personally, and if the company gets into debt, you are not personally responsible for it, unless you’ve signed a personal guarantee.
Sole traders are not separate legal entities. You are the business, you earn the money, and you are personally responsible for any debt.
What are the risks of using a personal account for business transactions?
Doing so can blur the lines between personal and business spending. This makes it more difficult to track business expenses, manage your budget and accurately complete your tax return.
Is it difficult to open a business bank account?
It should be straightforward to open a business bank account, particularly if you open it online. However, you can make the process smoother by ensuring you have all the required documents ready, such as your ID, proof of address and business registration.
The application process is likely to be faster if you’re a sole trader or run a straightforward limited company. Businesses with a complex business structure and multiple directors may find it takes longer.
Can I open a business bank account before I start trading?
Yes, but you may need to look for a start-up account suitable for businesses that have been trading for less than a year.
If you’re a limited company, you usually need to register your business before you can apply.
Do I need a business account to accept credit card payments?
Not necessarily, particularly if you’re a sole trader or freelancer. In these cases, you may be able to have a personal bank account and still accept credit card payments.
However, if you’re a limited company, you must have a business bank account, or merchant account, if you want to accept credit card payments. To do this, you need to choose a payment provider, then follow its guidance on setting up a merchant account. This is a specialised bank account that allows your business to accept card payments and is often offered as part of the package.
Are charities required to have a business bank account?
It’s not mandatory, but they are generally expected to have one. Opening a business bank account helps you protect your charity’s money and operate in a secure way.
It can also help with access to funding and it’s a requirement if you want to register with HMRC to claim back tax on things such as Gift Aid donations. A further benefit is that it makes your charity look more professional to donors. Many banks offer charity business accounts with low or no fees.
Does HMRC check business bank accounts?
HMRC doesn’t monitor business bank accounts routinely and it doesn’t carry out random checks. However, it might request access to your business bank account if it suspects something is wrong. Reasons for this include underreported income, tax evasion, fraud and suspicious expense claims.
Should I open a business savings account?
As with personal accounts, it’s also possible to open a business savings account. You don’t have to do this, but it can be beneficial if you have surplus cash, because you can earn interest on those funds. As your savings grow, you build up a financial safety net, which could prove valuable if you need to meet unexpected expenses.
You can usually choose from easy-access savings accounts, fixed-rate accounts and notice accounts.
About Rachel Wait
Rachel has spent the majority of her career writing about personal finance for leading price comparison sites and the national press, including for the Mail on Sunday, The Observer, The Spectator, the Evening Standard, Forbes UK and The Sun.