Best business bank account for freelancers

What is a business bank account and do I need one?

Going freelance gives you more control over how and where you work and one of the most important decisions you need to make is whether to have a business account and which one.

A business account separates your professional transactions and income such as money you generate through sales from your personal account. It is used to send and receive money for your business as well as for any expenses.

There is no legal requirement to have a business account if you are operating as a sole trader but if you are a limited company you will need one as your business is a separate entity.

There are several different types of business bank account, with some offering a free business banking allowance or interest on your balance. You can get accounts setup for small firms with low turnover or corporate accounts if you are lucky enough to generate high levels of income. There are also accounts that will support foreign currency transactions, which is helpful if you do a lot of work internationally.

Business bank account vs Personal accounts

Business account

Pros

• Separates transactions - It can be confusing if you combine your personal and business money as you could be mixing up funds you are using for company expenses with funds that are going towards your mortgage. Keeping your business and personal accounts separate makes it easy to keep track of both types of income and spending. You will also need a separate business account if you want a business loan or company credit card.
• Makes it clear for tax purposes - Having a separate business account can be beneficial when it comes to working out how much corporation tax you owe HMRC or other types of bills such as VAT as well as when it comes to doing your own self-assessment tax return. It will also make things easier if you are ever subject to an HMRC inspection and the taxman wants to see your business account.
• Looks more professional - Companies you are invoicing may be suspicious if they receive an invoice just in someone’s name rather than a company and it can also look more official and professional if there is a brand on the bill.

Cons

• Fees - Most business accounts aren’t free and you will need to pay monthly fees. Some providers may offer limited free periods but there can be more limits on activities such as transfers and cash withdrawals compared with a personal account.
• More administration - Most personal accounts can be opened by any individual but banks may have stricter requirements for businesses and may not provide accounts for certain sectors. The process of opening a business account can be more time consuming as you will also need to book an appointment with a main high street bank to setup an account and provide details of your business and estimates of your turnover.

Personal account

Pros

• More convenient - You don’t have to worry about managing a separate personal and business account or sitting through a branch appointment. Instead, your professional and personal income is managed in the same place.
• No fees - Most personal accounts are free so you won’t have to pay any fees to manage your business income and expenses.

Cons

• Bank terms and conditions - Some banks don’t allow personal accounts to be used for business use so you could be in breach of the terms and conditions and lose your account.
• Risk of confusion - You will need to be very organised to remember whether each item of spending was a business expense or for personal use. Similarly, you will need to be able to separate business and personal income when it comes to working out your taxes correctly.

App-only business accounts vs High street business accounts

The table below summarises the main app-only and high street business bank accounts:

You can read further details of each provider further down the article.

App-only business bank account comparison table

*Based on faster payments

High street business bank account comparison table

*Based on faster payments

Best app-only business banks

Below we have summarised all the major app-only business banks and summarised some of the top features.

Coconut business banking summary

• Fast setup within five minutes from your phone
• Accounting tools that categorise spending and estimate how much tax you may have to pay
• Can choose between a 'free start account' or a 'grow plan' for £5 per month
• Links with accounting software
• Send invoices
• E-money account

Accounts can be opened by sole traders or limited companies. Both plans offer debit cards, automated accounting, a receipt capture facility, free transfers and withdrawals for £1.

Replacement cards are free on the paid-for account but cost £4 on the start plan. You can get free overseas spending with the grow account or it costs 2 per cent on the start plan.

Deposits can be made at a local Post Office and cost £1 per deposit but you get five free deposits per month on the paid-for plan.

Tide business bank account summary

• Free spending abroad with issued debit card
• Link with accountancy software
• No monthly fees
• E-money account rather than FCA-regulated product
• 20p for transfers
• £1 for Post Office deposits
• Extra services and priority customer support can be accessed through paid-for services

Sole traders and limited companies can open accounts but there are limits on certain types of companies. The standard account has no monthly fees but you do have to pay for transfers and cash withdrawals. You can pay £9.99 per month plus VAT for Tide Plus which offers 20 free transfers a month or £49.99 per month plus VAT for unlimited transfers.

Read our Tide review to see the full features of its account

Starling business bank account summary

• Open an account via the app within 10 minutes
• No monthly fees
• Free spending at home and abroad with debit card
• Free ATM withdrawals
• Starling Bank Marketplace to access business products and services
• Spending alerts and categorisation
• Accounting tools
• FCA-regulated and protection form the Financial Services Compensation Scheme
• Flexible overdraft
• Send invoices
• Receipt capture

Starling Bank was set up by banking industry stalwart Anne Boden. It is fully regulated by the FCA and provides a free app-only business account that also integrates with accountancy software and lets you do nifty things like categorising expenses, photograph and upload receipts and access other services through the Starling Bank marketplace such as loans and insurance.

For business account cash deposits up to £1,000 at the Post Office, there's a £3 charge and for anything over £1,000, there's a 0.3 per cent charge on the deposit value.

It is open to limited companies and sole traders of any size, although it has in the past hinted it may eventually start charging large firms.

Read our full review of Starling's business bank account

Revolut business bank account summary

• Hold and receive multiple currencies
• Schedule and approve payments
• Issue pre-paid cards to employees
• Available for sole traders and limited companies
• Open to UK residents and those in the European Economic Area
• E-money account

Revolut offers two business freelancer plans. There is a free service that has unlimited payments to other Revolut accounts and five free local transfers each month but you need to pay for international transfers.

Alternatively, its professional plan also offers unlimited payments to other Revolut accounts as well as 20 local transfers per month and five international transfers all for a monthly fee of £7.

Unlike other app-only banks, it doesn’t support physical cash deposits.

Read our full Revolut business account review

Monese business bank account

• £9.95 per month
• Nothing to pay on local transfers
• Accessible in 10 languages
• Budget management features
• E-money account
• Sterling or euro account

Monese was one of the first app-only banks. It was initially set up to help those without a local address (or any credit history) to open a bank account and it has extended its offering to include business accounts.

It offers its business account customers the same features as its Plus account, so you get £9,000 of free foreign currency card spending per month and a 2 per cent fee thereafter.

There are also free foreign currency transfers to other Monese accounts or a 0.5% charge otherwise. You can make deposits at the Post Office for £1 and there is a card purchase limit of £4,000 per transaction and £7,000 per day.

You can withdraw £500 per transaction from a cash machine and £2,000 per week. There is a £10,000 transaction limit on outgoing direct debits.

Check out our full Monese review.

Monzo business bank account

• FCA regulated
• Accountancy tools
• Spending alerts
• Tax money pots
• Categorised payments

Monzo is perhaps one of the most recognisable banking apps with a popular personal account. It only launched its business account in March 2020. It offers a Pro version for £5 a month that includes six months free use of accountancy software Xero, tax pots so you can set aside money owed to HMRC and spending alerts. Its free Lite version doesn’t offer the accountancy tools or tax pots but provides everything else such as a debit card, spending categorisation and customer support. It costs £1 to pay in cash at PayPoint and you can take out £200 cash for free every 30 days with a three per cent charge when you exceed that. You cannot currently deposit cash via the Post Office.

The account is available for sole traders and limited companies but not partnerships. There are some types of businesses that can’t hold accounts such as those involved in gambling, lending or defence and weapons.

You can pay in £5 to £300 of cash in one go, and up to £1,000 every six months. If you’re aged 16 or 17, that limit is lowered to £500 every six months.

Pros and Cons of App only business bank accounts

Pros

• Easy to open - Most will let you apply and setup an account through an app where you will just need to upload documents and possibly provide a selfie. This should speed up the process and means you could have an account setup within minutes rather than weeks.
• Banking on the move - You will be able to access your account and manage your business finances from wherever you are as long as you have your phone.
• Same business banking features - An app-only bank gives you the same features as a high street branch meaning you'll have a debit card and the ability to send and receive payments. Some may also offer overdrafts.
• Fintech benefits - App-only banks offer extra features such as spending alerts and categorised spending.

Cons

• Different types of regulation - Not all app-only accounts are technically banks as they are not fully regulated by the Financial Conduct Authority. Instead, many are e-money lenders so you do not get the same Financial Services Compensation Scheme (FSCS) protection if they go bust. Most will still ringfence funds to keep them secure.
• No branches available - You can’t walk into a branch to make withdrawals or get support and instead need to rely on phone or email contact. Additionally, not all app-only brands offer features such as deposits, cheque payments or overdrafts.
• Reliant on technology - Not everyone is necessarily comfortable with managing everything on a smartphone and what happens if your phone battery runs or if the account is hacked
• Balance limits - Most app-only accounts will have limits on the balance you have to hold as well as on transactions, which can be lower than high street banks.

Best high street business bank account

Below we have summarised all the major high-street business banks and summarised some of the top features.

Lloyds business bank account

• 18 months’ free day-to-day business banking for new businesses
• Dedicated support from UK-based business management team
• Mobile Business Banking app to access your accounts on the move
• Regularly updated business guides and tools for running your business

The Lloyds business account offers an 18-month free-banking period, as long as the account is in credit, that covers cheques, standing orders, cash, UK Sterling Direct Debits, deposits and withdrawals. After this, there is a monthly fee of £6.50 per month. There is a £1 charge per £100 for the first £1,500 of cash payments in or out each month, falling to 80p above that. ATM withdrawals are free. Accounts can be opened by directors or companies, partnerships or sole traders.

Santander business bank account

• Up to £300 cashback each year through the 123 business account
• Standard day-to-day banking
• 0.10% monthly interest on any credit balances
• Discounted monthly fee of £5 for start-ups for 18 months and switchers for 12 months (£12.50 standard monthly fee)
• Access online, at Santander branch counters, ATMs and Post Office branches

Santander’s 123 account already offers personal users cashback on certain spending and this can now also be used by businesses. The monthly fee after the reduced rate period is £12.50 per month. Accounts can be opened by directors and you can either be a sole trader, limited company or a partnership as long as you are registered in the UK.

Your business qualifies for a start-up offer if it’s in its first year of trading and this is its first business current account with Santander. There are no charges for ATM deposits or withdrawals and you can withdraw up to £500 each day.

There is no charge for over-the-counter cash deposits either at a Santander or a Post Office branch of up to £1,000 per month and it then costs 70p per £100.

An arranged overdraft costs 1 per cent annually and there is a 2.75 per cent charge for overseas spending.

Natwest business bank account

• Free access to FreeAgent accounting software
• 24/7 Everyday banking support online, by phone and mobile
• 18-months transaction fee-free banking then pay as you go
• Dedicated start-up package

NatWest business holders can access dedicated business guides and events to help develop and grow their business. Its startup account is open to sole traders or limited companies that have been trading less than a year with turnover below £1m.

After the free period, NatWest’s standard charges are 35p per automated payment in or out and 70p per £100 for cash payments, plus there is a 35p charge for withdrawals. There is a £5 minimum monthly charge, you will need to pay this if your transactions are below this value.

HSBC business bank account

• Free banking for 18 months
• Free standard transactions for 30 months
• Overdraft available
• Accountancy integration
• Business banking app
• UK based telephone support

HSBC business account users get free payments and deposits for the first 18 months. There is then a £6.50 monthly and for the next 12 months you can deposit up to £3,000 of cash per month for free followed by a 0.5% charge.

After 30 months you can move onto a small business tariff that has the monthly fee and a 0.7 per cent charge for a cash deposit, 23p for BACS payments and 25p for debit card payments and ATM withdrawals. HSBC also offers face-to-face specialist support and Brexit clinics.

Pros and Cons of High street bank accounts

Pros

• Physical presence - You can walk into any branch of the bank to make deposits or withdrawals rather than having to rely on a Post Office or Paypoint.
• Face-to-face contact - Account holders don’t have to wait on hold with contact centres and can visit a branch where in some cases you may have a dedicated relationship manager.
• Access to other products - Having a business account with a bank can also give you preferential access to their other products such as loans and overdrafts.

Cons

• Legacy systems - Many banks are still catching up with fintech firms when it comes to the quality of their apps so you may not get as much functionality.
• Limited to branch opening hours - In most cases, high street banks will require you to open an account in-branch during their own opening times, which can be time-consuming.
• Higher fees - It may be slightly easier to withdraw and deposit cash with a high street bank business account but the monthly fees tend to be higher than an app-only bank as someone needs to pay for that branch structure.
• Fully regulated - All high street banks are regulated by the Financial Conduct Authority. They have certain rules to follow to treat customers fairly, plus you get deposit protection of up to £85,000 from the Financial Services Compensation Scheme if the provider goes bust.