Do I Need a Business Bank Account?

Photo by Michael Longmire on Unsplash

Banking facilities of some kind are essential if you intend to run a business. But do you need a specific business bank account?

The answer depends on what type of business structure you operate under.

If you’re a sole trader you are not legally required to open a business bank account. If, however, you run a limited company, you must – by law – open a business bank account. If you would like to know more about the differences between a sole trader and a limited company, check out this blog post.

Many sole traders choose to open a business bank account anyway, and it is advisable you do the same if any of the following apply:

-          You are planning to incorporate your business (become a limited company) in the future.

-          Your business processes a lot of transactions.

-          You need a business loan or credit card.

-          You plan to take card payments from customers.

There are two more important reasons for opening a business bank account:

1) Your bank requires you to do so

While sole traders aren’t required by law to open a business bank account, they may be required to do so by the bank. Personal bank accounts are generally for personal use only. If the bank discovers that you have been using the account for business purposes, they may close it down and tell you to open a business account.

2) It makes bookkeeping a lot easier

Keeping personal and business finances separate makes your life a lot easier, especially when it comes to keeping accurate books and filling in your self-assessment.

Even if your business only makes a few transactions a month, it’s worth opening a separate bank account so you don’t have to trawl through endless personal transactions to find that one expense you want to claim.

What’s the difference between a business bank account and a personal one?

A business bank account offers all of the same features as a personal bank account... and a few useful extras. The standard features include cash and cheque handling, a debit card, and overdraft facilities. You can also set up direct debits and standing orders as you would with a personal account.

The extra features include access to business loans and credit cards, and being able to accept card payments from customers.

The majority of banks do charge a monthly fee (starting at around £5) for business accounts. There may also be charges for certain transactions such as depositing cheques. Fortunately, many banks offer a fee-free period of 12 – 24 months, so if you’re a new business don’t let this put you off opening a business account.

Whether you’re legally obligated to open one or not, a business bank account can be a really helpful tool. But don’t just open the first one you find! Shop around as fees, incentives and functionality does vary. Check out this guide for comprehensive advice on what to look for when choosing a business bank account.