Do You Need a Business Account?

Everything you need to know about business accounts.

Updated: May 26, 2024
Rebecca Goodman

Written By

Rebecca Goodman

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If you’re a sole trader, or you own a limited business, you need to start thinking about opening up a business account.

In the UK there are just over four million self-employed workers, according to government figures. That could be freelancers, or sole traders, or those with small businesses. 

If this applies to you, it’s time to look at opening a business account. This is an account purely to deal with the finances around your company, whatever type of business that may be.

In this guide we look at everything you need to know about business accounts, from how they work and who might need one, to how to pick and open one. We’ve also picked out some of the best business accounts around to help you to choose one.

What is a business account?

A business account works a lot like a personal bank account. It’s a place where you can keep your money and people can pay you.

You can set it up like a current account, and money can go in and out. With a business account though, there are often extra features such as additional card holders which you can give out to members of staff. There may also be perks such as accounting software added onto the account when you open it.

If you have set up your company as a limited company it’s a legal requirement in the UK to have a business bank. But if you are a sole trader, it’s up to you whether you open a separate account or use your personal account for your business finances.

Who can benefit from a business account?

If you are a limited company you’ll need to set up a business account but if you’re a sole trader a business account can be very handy.

You can use a business account to keep your personal and business finances separate. This can help with the day-to-day management of your business and also with tax returns and accounting.

Whatever type of business you have, whether it’s full time or a side hustle, keeping your finances organised is crucial.     

How is a business account different from a personal account?

The main difference between a business and personal account is the fact the business account is specifically for business finances.

It can handle large amounts of money and will often offer extra benefits such as accounting software. There may also be tools whereby you can set limits on employee spending and set up invoices and receipts.

The type of account you need will depend on the size and nature of your business. There are some accounts specifically for start-up companies, for example, which may have limits on the overall amount you can earn per year. If you run an eCommerce business, there are also bank accounts available which can be tailored towards your business. 

What companies offer business accounts?

Many challenger banks, such as Revolut, Monzo, and Starling have set up business accounts which can be signed up for quickly, either online or via an app.

These accounts are quick and easy to set up and use and they’re often cheaper than using a traditional high street bank. 

However, there are pros and cons, and often you won’t be able to deposit cash or speak to anyone in person with a digital bank. If that’s important to you, a high street bank may be a better option.

While there are lots of free personal bank accounts on the market, you will usually have to pay for a business account. However, this doesn’t mean you should open the first one you see, there are lots to choose from and it’s important to shop around.

The pros and cons of having a business account

If you’re unsure whether you could benefit from having a personal and a business account, here are some of the pros and cons to using two accounts:

Pros:

✔️ Makes accounting easier: if all of your business finances come in and out of one account, this makes accounting and paying tax a lot easier. It means all of the information you need about payments is in one account and you’ll easily be able to see which are business expenses, which you can get tax deductions on.

✔️ Cuts down your admin: it’s easier to control company spending and to set limits on how much people can spend from one account. You’ll also only have one account to check if something goes wrong – such as if a payment doesn’t go through or a cheque bounces, for example.

✔️ You may have to have one: if you’re a limited company you need to have a business account, but even if you’re a sole trader, it may be the case that your personal account is not allowed to be used for a business.

✔️ Extra perks: there are often freebies thrown in with business accounts which can help your business. These can include insurance and accounting software, for example. 

✔️ Cheap foreign transactions: if you have international customers and you need to make money transfers to other countries, some business accounts are set up to do this, and will often charge you less than if you used your personal account.

✔️ Boost credit score: if you’re able to use your business current account effectively this can improve your company’s credit score. This means if you apply for credit in the future, such as a business credit card or a business loan, you will improve your chances of being accepted.  

Cons:

❌️ Fees: most business accounts charge a fee to use them, which can be around £5 per month. This will eat into your business profit, but if you’re able to use the account’s benefits, it could be beneficial to your company.

❌️ Extra admin: as you have a personal and a business account, it will take time to set up the business account and monitor it. However, overall having a separate account should make your business finances (and personal finances) easier to manage.

Related Guides:

FAQs

What protection is there with a business account?

Can I open a business account with bad credit?

Do all business accounts allow deposits?

How do I pay tax with a business account?

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