Do I need a business bank account?

What is a business bank account?

A business bank account is an account that’s separate from your personal account; keeping them apart allows you to clearly distinguish your personal finances from your professional ones. These accounts make it easier to maintain accurate records for accounting and tax purposes, track business transactions, build a credit rating for your company, apply for larger loans, and more.

Who needs a business bank account?

Some companies, such as limited companies, are required to have a business bank account. A limited company is a separate legal entity from the business owner or director. Sole traders and partnerships are not legally required to open a business bank account, but it’s strongly recommended. 

It’s also worth noting that some personal bank accounts do not permit business transactions. If you're a sole trader considering using your personal account for business purposes, double-check with your bank to ensure this is allowed.

If you’d like more guidance on choosing the right business structure, take a look at our guide to find out which option best suits your company’s needs.

What are the benefits of a business bank account?

There are many benefits of a business bank account. From sole traders to limited companies, these perks benefit all types of business structures. These benefits include being able to:

• accept card payments from customers
• handle large or high-volume transactions
• track and manage cash flow effectively 
• access business-specific loans and overdrafts 
• build a strong credit rating
• enhance your professional image.

Another benefit of opening a business account is having access to specialist support, as some banks offer a dedicated customer service department and individual account managers. You may also have access to invoicing tools that are built into your account. If this isn’t the case, we have a helpful guide on what to include on an invoice, so you can be prepared either way.

What should you consider before opening a business bank account?

There are some downsides to consider before opening a business bank account:

• Some banks charge a fixed fee for providing business services – this usually ranges from £3 to £15.
• Certain types of transactions may also carry charges. These may include withdrawing cash, issuing cheques, depositing cash, and setting up bank transfers.
• Some banks only offer business accounts to businesses that have been trading for at least a year, so you may need to apply for a start-up account – this applies mainly to sole traders, newly self-employed people, or those who have only recently started their business.

It’s important to compare business accounts, no matter what business structure your company follows, so you find the account that’s most suitable for you.

What documentation is needed for a business bank account?

To apply for a business bank account in the UK you must be 18 or over and a UK resident. You must also be a sole trader, the director of a limited company or a partner in a partnership.

Each bank will have its own requirements for new customers, but typically you will need to provide the bank with the following:

• identification and proof of your home address
• the date you started trading 
• a detailed description of your business activity 
• the legal business name and the business’s trading name, if these are different
• financial information, like details about your turnover, taxes, loans and existing accounts
• your contact details 
• your business address and business correspondence address, if this is different.

For limited campanies, further information may be required, including:

• your Companies House registration documents and Certificate of Incorporation 
• your company’s registered address
• your company registration number and date of incorporation
• information about all your company directors.

It’s important to note that if your business does not have a credit rating, the bank may carry out a personal credit check. If you’re worried about having poor credit, look for accounts that do not offer credit or overdraft facilities, as you may find it easier to qualify for these specific accounts.

Can I switch my business account?

You may want to switch accounts if you change your business structure, you come across an account that better suits your business, or if you want to look for better deals. 

Switching business bank accounts is an easy process, but it comes with advantages and disadvantages. The advantages are:

• Banks may offer incentives for new customers.
• You will be able to find better interest rates or lower charges.
• A new bank may offer more up-to-date services. 

The disadvantages may include:

• You will need to update all your payment details (including invoices), financial records and software accounts. 
• You will lose the relationship you may have built with your previous bank.

Business bank account FAQs

Can you use a personal bank account for business in the UK?

If you are self-employed or a sole trader, you can use your personal bank account for business purposes if you choose, but it can make it slightly trickier to keep clear records, so you may want to consider opening a business bank account. For more tips and advice, we have a blog on what I need to be self-employed, so you can learn more about what goes into self-employment.

Which bank is best for a small business in the UK?

There’s no one answer for which bank will be the best choice for your business – it depends what features you need and what rates are available. Some common elements of business bank accounts you should consider when comparing include accounting software integration, cash flow tools, specialist financial support and advice, monthly fees and digital banking.

At Which? Trusted Traders, we have a guide on choosing or switching a business account if you would like some more tips and details. Whether you’re a sole trader, in a partnership or a director of a limited company, become a Which? Trusted Trader and watch your business flourish.