Business savings accounts explained

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You could be making interest on your business' spare cash by moving it into a business savings account. Here is how they work and how to open one.
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When you own your own business, you want your money to work as hard as possible for you. Having the right kind of business savings account can help, and can mean the difference between earning extra interest on your cash and having it languishing on 0%. Here we look at exactly how business savings accounts work, how much they cost, and how you can get one.

Make the most of your tax-free ISA.

What is a business savings account?

It is an account available to businesses that pays interest on your savings.

What types of savings accounts are there?

Like personal savings accounts, there are many types of business savings accounts, and they come with different levels of access.

The most common types of account are:

  • Fixed-term: you get a set rate for an agreed period, but you cannot withdraw your money during the fixed term without paying a penalty.

  • Instant access: you can withdraw cash anytime, but you get a lower interest rate.

Each account has its own opening criteria; for example, some make you deposit a minimum amount of money to start the account, such as £10,000.

Are you eligible?

You can open a savings account for your business if it meets the following requirements:

  • UK based

  • All owners, directors, and account users have to be at least 18 years old

  • You need to have a business current account

The only way to move money in and out of a business savings account is through a business current account.

You will have to nominate this account when you open your business savings account. You don’t need to have the current and savings accounts with the same provider. 

If you are a sole trader

You can move money between business accounts and personal accounts, as both will be in your name. This means you can apply for personal savings accounts to gain interest on your business savings.

If you have a limited company

You can only open savings accounts designed for businesses. It also means the money saved does not belong to you but to the business.

How to choose the right account

When you are searching for a business savings account, ask yourself the following questions to help you find the right account for your circumstances:

  • How much access to your money do you get?

  • What is the interest rate?

  • Are there penalties for withdrawing your money?

  • How do you manage the account: online, in branch, by post etc?

  • Is there a minimum amount you need to deposit to open the account?

If you think you will need immediate access to your money without notice...

You should look at saving into an instant access business savings account.

These accounts usually pay lower interest rates, but you will be able to withdraw your money whenever you want.

If you know you will not touch your money for a year or longer...

You could look at saving into a business fixed term bond, which ties up your money for a set term.

These accounts offer higher interest rates but will penalise you if you decide you need to access any of your money before the term is over.

How do you apply?

After you choose a business savings account to open, you have to follow an account opening process which could include:

  • Completing a form online

  • Speaking to an adviser and completing a form in a branch

When you apply for a business savings account you will need to give the following business details:

You also need to pay money into your account to open it - this amount will depend on the individual account.

Here is a list of business savings accounts available to open in the UK

How much do business savings accounts cost to run?

They are usually free, however, there are some charges you might face depending on how you operate your account, they include:

  • CHAPS electronic payments - around £20 for each transfer

  • Duplicate tax statement - around £10

  • Recalling a BACS transfer - around £15

  • Audit request on account - around £25 plus VAT

You will always be notified of any charges before you make a transaction, whether this is done online, over the phone or in branch.

Will you need to pay tax?

All business savings accounts advertise their interest rates as gross. This shows the rate before any tax is deducted. If your business savings account has not deducted any tax or you have chosen to pay it separately yourself, then you must declare it as part of your annual self-assessment tax return.

If you are a sole trader

You will only be liable to pay tax for any money you make above the standard personal allowance, which is £12,570.

This means you can earn up to £12,570 (including any interest made on your savings) before you have to pay any tax.

You can work out how much tax to pay as part of your annual self-assessment tax return. Any tax you owe will be due to HMRC by the 31st January following your tax year-end.

Your tax payment deadline for the 2020/21 tax year is 31st January 2022. There are different deadlines for filing your tax return depending on whether you do it online or you post it in.

If you have a limited company

You will pay corporation tax on any profits you make as part of your business; this includes any interest made on business savings.

The amount you will pay will be calculated as part of your end of year financial statements.

You will have to pay your tax bill to HMRC within nine months of the end of the financial year (31st March);

For example, any tax due from the tax year leading up to 31st March 2021 will need to be paid by 31st December 2021.

Are business savings covered under the FSCS?

If your business fits two out of the three definitions below then you will have £85,000 savings protection under the Financial Services Compensation Scheme (FSCS). This means the money is protected if your provider goes bust. Protected businesses:

  • Have a turnover of under £6.5 million

  • Have a balance sheet total under £3.26 million

  • Have no more than 50 employees

Visit the FSCS website for more information.

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