How business current accounts work

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If you run your own business, are a sole trader, or look after the finances of a company, you may need a current account. Here is how business bank accounts work and how to get one.

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Man writing a business plan, filing accounts for a small business

A business bank account is a great tool for keeping the finances of a company separate and for managing regular transactions such as paying employees and taxes. There are plenty of accounts to choose from, so it’s important you pick the right one and understand all the fees and charges before you sign up. This guide looks at how business bank accounts work, why you might need one, what to watch out for, and how to open one.

What are business bank accounts?

They are similar to personal current accounts, allowing you to:

  • Pay money in

  • Make payments on a debit card

  • Transfer money to other accounts

  • Set up regular bill payments

You can open one in your business' name to handle its incoming and outgoing payments.

Do businesses need a current account?

You have to get a business bank account instead of a personal account if you run:

  • A limited company

  • An incorporated company

If you are a sole trader or part of a partnership, you could use a personal bank account instead. However, many banks do not let you use personal accounts for your business.

Using a business account lets you separate your own finances from your business. This makes it easier to:

  • Budget

  • Keep track of your finances

  • Separate your business' tax liability from your own

What features can you get?

Business accounts can offer:

  • Interest on your account balance.

  • A branch service where you can pay in cash and cheques or withdraw money.

  • Extra services, like a separate queue.

  • An overdraft, which lets you borrow money in the short term.

  • A debit card and cheque book for paying bills or for making purchases. (Some banks can issue several of these so more than one employee can help run the account.)

  • Online banking, which lets you check and run your account through your bank's website or a mobile app.

You may also be able to open an account with the following benefits, which are specifically designed for businesses:

  • Being able to process salary payments to your employees

  • Receiving payments by credit or debit card

  • Receiving customers' payments by direct debit

  • Sending and receiving payments in foreign currencies

  • Running credit checks on other businesses and suppliers you use

Which type of account can your business get?

The type of account available to you will depend on the provider, the size of your business, your annual turnover, and how many employees you have. You may be offered a:

  • Business bank account for a sole trader or business with a few employees

  • Commercial bank account for small and medium-sized enterprises (SMEs)

  • Corporate bank accounts

How much do business current accounts cost?

Most charge an annual or monthly fee for holding the account. This can be up to £12.50 per month or £80 per year. 

Business current accounts also charge for services, including:

  • Using an overdraft

  • Paying in cash or cheques - for example, 50p per transaction or for every £100 deposited

  • Writing a cheque

  • Withdrawing cash

  • Making a bank transfer

  • Sending money abroad or receiving it from another country

  • Receiving card payments

  • Swapping notes for coins

Free business bank accounts

There’s no monthly or annual fee for some business accounts, but this may be limited to a set period after which you’ll have to pay regular fees. Find out what these will be before signing up for any free business banking offer.

Some banks charge different fees depending on the size of your business. For example, they could offer a free account to small or new businesses but charge for companies with more than 250 employees.

Some also base their fee structure on how many transactions you make or how much you pay in each month. Therefore it’s worth taking some time to compare different accounts to make sure you have the best and most affordable option for you and your business. 

Business overdrafts

If you spend more than you have in your business account, you could be hit with several overdraft charges.

Some banks offer free overdrafts if you have just started your business or when you first open an account with them.

However, business overdrafts sometimes only last for a set period, like two years. After this, your bank could:

  • Remove your overdraft, meaning you have to pay it off by then

  • Reduce your overdraft limit

  • Start charging interest on an overdraft that was previously free

How to get a business bank account

Most banks and building societies offer business bank accounts. You can use our comparison tool to see what’s available and who they’re aimed at. It shows:

  • The types of companies accepted - for example, limited companies, sole traders, and partnerships

  • The maximum annual turnover required

  • Other eligibility criteria, like a minimum balance or maximum number of employees

  • Annual fee 

  • Interest rates

Once you have chosen one, you can apply online by completing the application form on the bank's website.

What documents do you need?

The bank you choose may ask you to provide:

  • Proof of your identity and anyone else who will run the account

  • Evidence that you are authorised to run the business' finances

  • Your business' name, address, annual revenue, company number and total number of employees

  • Details of your business' other partners if you are not a sole trader

The bank or building society usually runs a credit check on you and your business, and they may need further details of your business's finances or financial plans before they offer an overdraft.

How to switch to a new account

If you already have a business bank account, you may be able to switch to a new one with a better overdraft, interest rate or other benefits. The steps are as follows:

  • Contact the new bank, who will arrange the switch for you

  • Wait while they move across your balance, standing orders and direct debits

  • Start using your new account; your old account will be closed

Small businesses with fewer than 50 employees and an annual turnover of less than £6.5 million can use the Current Account Switch Service (CASS). This guarantees the bank will complete the switch on the day of your choice (in a minimum of seven working days).

New bank accounts are offered all the time, so compare all of the best options to make sure you get the right one for you.

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