What is a business bank account and do I need one?
Going freelance gives you more control over how and where you work but one of the most important decisions you need to make is whether to have a business account and if so, which one? A business bank account separates 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 a business bank account 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 set up for small firms with low turnover or corporate accounts if you 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 bank account
Business bank account pros
- Separates transactions - It can be confusing if you combine your personal and business money as you could be mixing up funds that 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 your self-assessment tax return. It will also make things easier if you are ever subject to a 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.
Business bank account 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 transactions 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 may also need to book an appointment with a main high street bank to set up an account and provide details of your business and estimates of your turnover.
Personal bank 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.
Personal bank account 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.
Best app-only business bank accounts for freelancers
Below we have summarised some of the best app-only business bank accounts.
- Fee-free spending abroad with issued debit card
- Link with accountancy software
- No monthly fees
- FSCS protected bank provided by Clearbank
- 20p for transfers
- £1 for ATM withdrawals
- £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 company types. 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 with Tide Cashback plus VAT for 150 free monthly transfers.
Read our Tide review to see the full features of its account
Starling Bank - good for no monthly account fees
- 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 from the Financial Services Compensation Scheme
- Send invoices
- Receipt capture
Starling Bank is fully regulated by the FCA and provides a free app-only business account that also integrates with accountancy software and lets you categorise expenses, photograph and upload receipts and access other services through the Starling Bank marketplace. For business account cash deposits are charged 0.3% with a minimum of £3, this is set to increase to 0.7% from 1st March 2022. 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 - good for multi-currency accounts
- 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 so no FSCS protection
Revolut offers three business freelancer plans at £0, £7 or £25 a month. The free service has unlimited payments to other Revolut accounts and five free local transfers each month but you need to pay for international transfers. Revolut Business' 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 or alternatively, its Ultimate plan offers 10 free international transfers and 100 free local transfers. Unlike other app-only banks, it doesn’t support physical cash or cheque deposits.
Read our full Revolut business account review
- £9.95 per month
- Nothing to pay on local transfers
- Accessible in 14 languages
- Budget management features
- E-money account
Monese was one of the first app-only banks and it was initially set up to help those without a local address (or any credit history) open a bank account. It has since extended its offering to include business bank accounts. Monese business charges 0.5% per transaction when spending abroad as well as 0.5% for each foreign currency transfer to non-Monese current accounts (minimum £2 fee). Foreign currency transfers between Monese accounts are free. You can make deposits at the Post Office for £1 and 2.5% at a PayPoint but you can withdraw cash for free 6 times in a month and for £1 thereafter.
Find out more on the Monese website.
- 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 3% 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.
Find out more in our Monzo business review.
Compare the best app-only business bank accounts for freelancers
|Pricing (Monthly)||Free/£9.99 plus VAT/£49.99 plus VAT||No monthly fees||Free/£7/£25||£9.95||Free/£5|
|Fee-free spending abroad|
|Free ATM withdrawals|
Pros and Cons of app-only business bank accounts
Pros of app-only business accounts
- Easy to open - Most will let you apply and set up 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 set up 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.
- Fintech benefits - App-only banks offer extra features such as spending alerts and categorised spending.
Cons of app-only business accounts
- Different types of regulation - Not all app-only accounts are registered as fully-fledged UK bank accounts. 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 accounts for freelancers
Below we have summarised some of the major high-street business bank accounts.
Lloyds business bank account - good for business guides and tools
- 12 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 a 12-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 £7.00 per month. Accounts can be opened by directors or companies, partnerships or sole traders.
*Lloyds Bank has currently paused new business account applications for those looking to switch business accounts. It will update its website when it has reopened applications.
Santander business bank account - good for cashback
- 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 and have no more than 2 directors, owners or partners.
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% annually and there is a 2.95% charge for overseas spending.
*Santander has temporarily paused business account applications for new customers and is focusing on supporting existing Santander customers.
NatWest business bank account - good for free accounting software
- Free access to FreeAgent accounting software
- 24/7 Everyday banking support online, by phone and mobile
- No monthly account charge
- No transaction fees for the first 18 months
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 for less than a year with a 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.
HSBC business bank account - good for overdraft
- No account maintenance fee for 12 months
- Overdraft of up to £30,000 available
- Cashflow and spending insights
- Scan and deposit cheques within the app (limits apply)
- Business banking app
HSBC business account users don't have to pay an account maintenance fee for the first 12 months. After 12 months you can move on to a small business tariff that has a monthly fee of £6.50 and a 0.6% charge for cash withdrawals. HSBC also allows you to scan and deposit cheques within the app, as well as make payments of up to £25,000.
Compare the best high street business bank accounts for freelancers
|Pricing||Discounted monthly fee of £5 for start-ups for 18 months and switchers for 12 months (£12.50 standard monthly fee)||First 12 months free (£7.00 per month thereafter)||No maintenance fee for 12 months (£6.50 per month thereafter)||No monthly account fee|
|Fee-free spending abroad|
|Free ATM withdrawals|
* Santander and Lloyds have temporary restrictions on new business accounts
Pros and Cons of High street bank accounts
Pros of high street business bank accounts
- 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 of high street business bank accounts
- 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.