Do you need to open a business bank account?
If you are a sole trader, that is you are self-employed or a freelancer, you are not obliged to open a separate business bank account, although there are many advantages for a small business having business banking in a dedicated current account.
If you have registered your small business as a limited company, however, than you must have a dedicated business account for your company. The company is a legal entity and your personal banking must be kept apart from that of the business.
Irrespective of legal requirement, you might want to open a separate tax account to put money aside for your bills, or simply have a current business account to clearly define your personal and professional finances from the day you launch.
Should you use business banking if you are a sole trader?
As a sole trader you could use a regular current account for your work banking, which can be your existing bank account or a separate one. There are some things to consider about business banking for sole traders.
The terms and conditions of your bank
It might be that in the small print of your current account there are terms that mean your account should be used for personal banking only. If a lot of money is passing through your account, you are passing an usual number of cheques, or making abnormal transactions, then your bank may close your account or advise you to open a business account. You may also be subject to a different tariff and may not be getting the best deal.
Clarity for HMRC
One of the main advantages of opening a dedicated business account is to keep track of your transactions. When you come to submit your tax return it will help to be able to separate your business income and expenses from your personal ones. You can keep track of your credits and debits on your bank statements and there are even special accounts aimed at freelancers’ specialist needs. These provide accounting software to help with your self-assessment tax return and have built in tax accounts where you can put aside money to cover your bill at the end of the year. This is especially valuable for new businesses preparing to pay tax for the first time.
Professionalism
Having a dedicated business bank account on your invoice can make you look more professional, particularly if the account is in your business name. Indeed, some clients dislike paying into non-business accounts. Most business bank accounts now offer online banking, which offers added convenience for business users. You might be able to take advantage of free banking, in some cases for the first year or eighteen months, and this is a boon for start-up businesses when every penny counts.
Do you need business banking for a limited company?
If you have set your UK business up as a limited company then you are legally required to keep the business finances separate from your personal accounts. A targeted business account may also offer online banking, electronic payments, and mobile apps that save time and travelling to a bank branch.
Can you get free business banking for UK-based businesses?
The main difference between personal accounts and business accounts are the fees. However, when opening a new business account you can often take advantage of free banking for the first year, and in some cases for the first eighteen months to two years. Many business accounts then have a minimum charge for transactions and services, so shop around and use comparison websites to find the best tariff for your individual business needs.
Some accounts will charge you for paying in a cheque, for instance, but as cheques may not be something you use very regularly in your business, this may not be something that is a deciding factor. Charges for other transactions might have a greater impact on your expenses so look for the list of tariffs when you choose your business banking.
Most of the big banks offer current accounts for business, some of which offer free day to day banking for a year, after that there may be an annual fee, a monthly fee, or fees for certain services.