How business current accounts work

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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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 when you have a positive balance on your account.

  • A branch you can use to pay in cash and cheques or withdraw money. Some banks offer extra services to businesses, like a separate queue.

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

  • A debit card and cheque book you can use to pay bills or make 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.

They can also include features only available to businesses like:

  • 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 can your business get?

Each bank provides different services, and some offer different accounts depending on the size of your business, your annual turnover or how many employees you have. They may offer separate:

  • Business bank accounts for sole traders or businesses with few employees

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

  • Corporate bank accounts

How much they cost

Business current accounts can come with a range of charges, including for:

  • Using an overdraft

  • Paying in cash or cheques, e.g. 50p per transaction or per £100 you pay in

  • 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

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

Free business bank accounts

Some business accounts come without a monthly or annual fee, but some only offer this for a limited period like two years.

After this period, they start to charge a fee, so check how much this will be before you choose an account because it offers free banking.

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 a fee on their bank account for companies with more than 250 employees.

Some also base their fee on how many transactions you make or how much you pay in each month.

Business overdrafts

If you spend more than you have in your business account, you could have to pay 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 free before

How to get a business bank account

Most banks and building societies offer them, and you can find one using our comparison.

You can use it to find the right account for your business because it has details of what companies can open each account, including:

  • The types of company accepted, e.g. limited companies, sole traders and partnerships

  • The maximum annual turnover

  • Any other eligibility criteria like a minimum balance or maximum number of employees

You can also use it to check each account's annual fee and interest rate. 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

  • Proof you are authorised to run the business' finances

  • Your business' name, address, annual revenue, company number and total 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' finances or plans before they offer an overdraft.

How to switch to a new account

If you already have a business bank account, you can switch to a new one with a better overdraft, interest rate or other benefits.

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

  • They will move across your balance, standing orders and direct debits

  • Your old account is then closed

Small businesses with fewer than fifty employees and an annual turnover of less than £6.5million can use the Current Account Switch Service (CASS). This guarantees it will be completed on the day of your choice in seven working days or more.

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.