How to open a business bank account in the UK

11 min Read Published: 03 Feb 2021

How to open a business bank accountIf you've recently started your own business one of the first decisions you'll have to make is whether to open a business bank account. The arrival of a number of digital 'app-only' banks - many of whom offer a business bank account - is making the process of opening a business bank account that little bit easier.

In this article we explain who should get a business bank account, what information is required to open a business bank account and what are the best ways to apply.

What is a business bank account and how does it work?

A business bank account works in a very similar way to a personal bank account. The money that flows in and out of a business bank account is income and expenditure solely related to the business and so having a business bank account enables you to keep personal and business finances separate. Business bank accounts tend to have higher limits and fees. In addition, most can be synced automatically with business accounting packages such as Xero and Quickbooks.

Do I need a business bank account?

Before you consider how to open a business bank account or which business bank account is best, it is worth double-checking that you definitely need a business bank account in the first place. There is no legal requirement to have a business bank account if you are a sole trader, however, if your business is set up as a limited company then you'll need to keep you personal and business finances separate, so a business bank account is a must.

Who should legally have a business bank account?

cross Sole Trader (Hairdresser, designer, developer, writer etc)

cross Casual self-employed worker (Delivery driver or money earned from a side-hustle etc)

tick Limited Company (If your business is registered with Companies House)

It is worth remembering that while sole traders do not legally have to have a business account, there is nothing stopping them from having one. Many sole traders prefer to use a business account regardless as it provides an easy way to keep their business and personal finances separate.

What are the pros and cons of a business bank account?

There are advantages and disadvantages to having a business bank account and we summarised the main pros and cons below.

Pros

  • Credit rating - Can help to build the credit rating of the business which can help with applications for business credit cards and loans
  • Time-saving - Keeping your business and personal finances separate can help to save time when doing your business accounting and tax returns
  • Professionalism - Having an account in the name of your business looks professional and may help to win more business
  • Terms and Conditions - Some personal bank accounts have restrictions and so if your business has lots of cash transactions you could fall foul of the terms and conditions and risk your account being closed

Cons

  • Can be expensive - Business banking isn't usually free and the fees can add up, especially if you use a business bank account that charges per transaction
  • Can take time to set up - Most business bank accounts can be set up in a few days, but some can take longer. If you are worried about the time it takes to set up a business bank account, it may be worth checking out Starling Business or Monzo Business, as the setup process is usually far quicker

What documents do I need to open a business bank account?

The documents you need to open a business bank account may vary slightly depending on the bank you choose, however, most banks would ask that you provide the following:

Business bank account identification Example ID Required for Sole Trader? Required for Limited Company?
Proof of ID Copy of driving licence or passport Yes Yes
Proof of address Mortgage statement or utility bill Yes Yes
Company registration Companies house details No Yes
Tax registration Registration documents No Yes
Vat registration Registration documents No Yes

Can I open a business bank account online?

The quickest way to open a business bank account is to use a digital bank such as Starling or Monzo. Both banks allow you to open a business bank account online. The first step is to apply for a personal bank account by uploading identification documents via a mobile app. Once your personal bank account has been approved, you simply apply for a business bank account through the app.

Most high street banks allow you to complete a business bank account application online, but be warned, most will insist that you send identification and registration documents in the post, which can significantly slow down the application process. If you are considering a high street business bank account then it may be quicker to make an appointment at the branch, but be sure to take all of your documentation with you.

Which business bank account is best?

When deciding which business bank account is best for you there are a number of factors to consider. Below we have provided a list of questions you should ask yourself before making your final choice.

Are you happy to pay a monthly fee?

Some basic business bank accounts do not charge a monthly fee, however, there may be fees for withdrawing or depositing money as well as fees for every online transaction. Understand how your business works, what transactions take place and choose a business bank account that has the best charging structure for your business

Do you need to regularly deposit cash?

If you need to regularly deposit cash then you need to consider a bank that has a branch close by. Most digital banks allow you to deposit money at a post office however there are usually fees to pay.

Do you need to deposit cheques?

Some online business bank accounts do not allow you to deposit cheques and so you would need to avoid them if your business is likely to receive cheques.

Do you use accounting software?

If you use accounting software then it would be wise to use a business bank account that can synchronise with the software you use. Some banks may charge a fee for this service or you may need to upgrade to a premium package.

Do you want FSCS protection?

The Financial Services Compensation Scheme (FSCS) protects money held in personal and savings accounts up to a total of £85,000 per person (per financial institution). Not all business bank accounts provide FSCS protection and so make sure you know the risks before opening a business bank account.

How do you compare business bank accounts?

The above questions should help narrow down the type of business bank account you need. As a rough guide, if you regularly deal with cash and cheques, then a high street bank may be more suitable for your business. Alternatively, if you rarely need to deposit money, then you may want to consider a digital bank such as Starling or Monzo as they are cheaper than high street banks and quick to set up. If FSCS protection isn't a concern then there are other digital alternatives such as Revolut or Tide. If you are a freelancer, check out our article "Best business bank accounts for freelancers".

Things to do after you open a business bank account

It is worth taking a little time to verify everything is correct. Check the name and address as well as any other details to ensure that it corresponds with your identification and registration documents. If you have regular expenses, set up direct debit payments to ensure that your bills are paid on time. Make a note of any fees and transaction charges so that you know what you will be charged ahead of time. Set a reminder to review your business bank account in a year's time. There is nothing stopping you changing your business bank account if you are no longer happy with the service.

Other things to consider when you set up a business

A business bank account is just one of the considerations when setting up a new business. Below we have provided some links to some articles that you may find useful.

Business Planning

Loans and Credit

Accounting

Insurance

Looking for a financial adviser near you?

Do you need financial advice? An independent financial adviser can show you how to make the most
of your money. Find your nearest qualified and regulated adviser using this VouchedFor search tool.