Simply said, limited companies are obliged to use a business bank account — although this is often overlooked.
Limited liability corporation management in the United Kingdom involves legal and financial duties. One such need is having a separate company bank account, which is commonly ignored by young business owners.
Business owners in the UK have a lot on their plates due to the country's high cost of living. Our goal is to make things less complicated.
This article will discuss the significance of keeping one's personal and professional funds distinct, as well as the rationale for this legal need.
| Provider | Score | Details |
|---|---|---|
| 1. Starling Bank | ★★★★★ | Learn more |
| 2. HSBC | ★★★★★ | Learn more |
| 3. Lloyds Bank | ★★★★★ | Learn more |
| 4. Tide | ★★★★★ | Learn more |
| 5. Zempler Bank | ★★★★★ | Learn more |
At a Glance, Pros and Cons
In this section, we round up the drawbacks and advantages of business bank accounts as a limited company.
| Pros | Cons |
|---|---|
| ✅ You have the option of selecting a financial institution that requires a single user ID and password for online banking and has a single physical location. | ❌ An alternative service provider may give more enticing terms, cheaper rates, higher quality services, or useful extras like an invoicing platform, corporate charge cards, or fee-free international wire transfers. |
| ✅ Opening a business account with the same financial institution as your personal account might earn you a discount or other perk from your personal account provider. | ❌ As a single proprietor, you cannot make separate FSCS claims for the money in your company and personal accounts at the same bank since it all adds up to the £85,000 FSCS maximum. However, if your firm is incorporated as a distinct entity, you may be eligible to deduct up to £85,000 on your personal and business tax returns. |
| ✅ Quicker and fee-free self-payment: It's possible to make free, immediate “internal transfers” (funds sent between accounts at the same bank). | |
| ✅ More of your funds are protected by the FSCS: Your bank account funds up to £85,000 are insured by the Financial Services Compensation Scheme. |
What is a business bank account?
A separate company checking account may usually be set up at most major financial institutions. Business loans, credit cards, and overdraft lines of credit are all available to you so that you may meet the ever-evolving financial demands of your company, whether they be day-to-day operations or future expansion.
A corporate bank account may provide more than just the ability to keep your company and personal funds separate:
- Planning resources
- The ability to automatically classify costs
- Managing client accounts
- Compatibility with financial applications
Required by law?
A business bank account is required by law in the United Kingdom for all limited liability corporations. Companies House, the government department in charge of company registration and compliance, enforces this provision of the Companies Act 2006.
Company directors are required by law to keep correct financial records, which includes keeping a separate bank account for business purposes, excluding extraordinary circumstances such as the use of offshore deposits.
Having a separate company bank account from one's personal one is the fundamental reason why limited liability businesses are required to get one. Several crucial factors need this condition:
Justifications for this requirement:
- 📖 Compliance with the law: Having a separate bank account for company transactions helps businesses meet their legal responsibilities. This involves keeping detailed records of all financial dealings, filing complete and correct tax returns each year, and being completely open with HM Revenue and Customs (HMRC) during any audits or inspections that may be conducted.
- 📖 Transparency: Having a separate company bank account promotes openness in financial dealings. Income and expenditures can be monitored more easily, accounting procedures can be streamlined, and reliable financial reports may be generated. For tax reasons, financial analyses, and satisfying regulatory authorities, this openness is essential.
- 📖 Legitimacy: The professionalism of a limited company are bolstered by the use of a separate corporate bank account. It shows that the firm is serious about its business and is operating independently of the directors' and shareholders' personal funds. Having a business bank account also adds credibility by allowing the firm to accept payments in the company's name from clients and consumers.
- 📖 Simplification: Having separate accounts for company and personal expenses simplifies and clarifies financial management. The ability to easily monitor the financial health of the firm, plan for expansion, and make educated choices is greatly enhanced by having a separate bank account for business purposes.
- 📖 Protections: For limited liability protection to apply, it is essential that company and owner funds be kept completely separate. Having a separate corporate bank account makes it easier to keep track of company funds apart from individual ones. Directors and shareholders are shielded from personal culpability in the event of legal claims or bankruptcy because of this separation.
What will happen if I don't comply?
Tax havens are sought after for a reason; they allow more of your money to stay in your pocket.
For the rest of us, failing to have a separate business bank account for a limited company as required by law might have dire implications.
Directors may face fines from Companies House, and the company itself may be accountable for any accounting irregularities.
In addition, HMRC may launch an inquiry into the matter, which may result in monetary penalties, interest charges, or even criminal prosecution for tax evasion.
I am not an LLC; do I need a business checking account?
Should you open a business bank account, and what sorts of things should you look for while doing so?
It's understandable to want to get right into running your new business without first considering whether or not you'll need a separate bank account for your company. It's crucial to keep business and personal funds distinct as your company develops and grows.
Although mixing company and personal funds is often the quickest, least expensive, and most convenient option for new ventures and part-time business owners, doing so might lead to complications down the road.
You are building up a lot of unnecessary trouble for the future if you don't have a separate company bank account.
Even if you just plan on running your company on the side, it's still important to treat it like a legitimate enterprise and open a separate business bank account for it. Otherwise, you'll be setting yourself up for a lot of unnecessary stress and money down the road.
Many company owners can attest to the benefits of maintaining a separate checking account for business expenses.
There are a variety of business checking accounts accessible, and some of them charge fees while others don't until you deposit a particular amount every month.
Never assume that the bank you use for personal transactions is also the greatest option for your business's needs; rather, conduct some research to find out where you can save the most money. If you are a lone proprietor or partner in a company, you are not required to open a separate bank account for your enterprise.
Instances when a business account might come in handy
You can't run a company without a bank account. 📓
The following are some considerations to keep in mind if you're still sure that mixing corporate and personal funds is a smart:
#1 Starting a company as a pastime
If your company's finances don't seem like they belong to a real corporation, you'll have a hard time convincing the government that you're serious about being in business.
Only legitimate firms may deduct their business expenditures, so if you're operating your company out of your personal bank account, you may have to provide evidence that this is not the case.
#2 Declaration of taxes
It's enough of a hassle trying to get your taxes in order without having to go through your personal financial documents to locate the business-related costs.
Combining corporate and personal finances just adds complexity and should be avoided at all costs. If you're browsing through your own checking account, it's easy to overlook deductions.
Tidier, better-kept records will guarantee that you may claim every cent, whether you or an accountant finish your tax return. Keeping corporate finances distinct from personal finances allows for easier auditing.
#3 Professionalism
If you run your company out of a dedicated business checking account, you'll give clients and potential customers the impression that you mean business.
Never forget that, no matter its size, your company still has to be treated like a business if you want it to succeed. It's important to factor in the costs of keeping an offshore savings account, which may reach £25 every withdrawal. It's smart to read the stipulations thoroughly before committing to creating an account.
8 questions to ask when you’re looking for a business bank account
#1 Is there a free checking account for new members?
Find out about the many business checking account alternatives, from traditional brick-and-mortar banks to online-only institutions, and compare their first deposit bonuses.
Typically, a company's first 12 to 18 months of operation are free of charge, followed by a period of reduced regular charges or fees. Businesses looking to transfer banks may also take advantage of less attractive initial offers.
Where can I learn more about the top UK business bank accounts? Choose the best bank for your small company, whether you're just getting started or you've been around for a while.
#2 Is there an overdraft option available?
Having access to an overdraft account is helpful since lack of funds is the leading cause of company failure. However, this isn't always possible; online-only banks are one exception.
#3 Is a dedicated business relationship manager?
It's also beneficial to know that there's someone you can reach by phone or email who knows your company and, ideally, has the authority to make financing choices on your behalf. That's much better than a faceless contact centre or a “computer says no”.
#4 How reliable are its online and mobile banking services?
The epidemic has had the lasting consequence of making us all switch to electronic banking methods such as smartphones. The user experience, however, differs greatly across popular banking applications for smartphones.
Starling Bank rated first among online and mobile business bank accounts in a poll conducted by the Competition and Markets Authority in February 2023.
#5 Do they exclusively operate online, or do they have physical locations as well?
It might be inconvenient to deal with digital banks that don't have physical locations if you need to deposit cash or a check. In contrast, Metro Bank actively pursues walk-in customers by furnishing its branches with beautiful foyers.
According to the most recent CMA business banking study, Metro Bank is the best in terms of branch service. Starling Bank rated first might be inconvenient to deal with digital online banks that don't have physical locations if you need to deposit cash or a check.
In contrast, Metro Bank actively pursues walk-in customers by furnishing its branches with beautiful foyers. According to the most recent CMA business banking study, Metro Bank is the best in terms of branch service.
Business banking options of Metro Bank can be checked out on that CompareBanks link.
#6 Does it provide more extensive ‘how to' assistance?
The “how to” instructions, online training modules, videos, tools, and calculators offered by Yorkshire Bank are only one example. A SWOT (strengths, weaknesses, opportunities, and threats) analysis template is also included in the tools and calculators.
#7 When may I create an account and for how long?
Since the bank needs time to verify your identification, business, and any directors listed under your company's registration, opening a business account might take anywhere from one to four weeks.
The process may be sped up by a number of variables, including:
- If you have a normal checking account with the bank, you can skip this step.
- In contrast to a corporation, solo traders work independently from everyone else.
- Faster service is available from certain banks; these institutions often provide online estimates of processing times.
#8 Does it allow for an unrestricted number of purchases?
There is a daily transaction limit on certain corporate bank accounts. In contrast to our competitors, we provide a wide variety of deposit and withdrawal options. Choose a business bank that lets you make as many deposits and withdrawals as you want, both online and in person.
Best business bank accounts for limited companies (Ltd) — Reviews
Since a limited liability corporation is considered a legal entity unto itself, it is required by law to have its own bank account.
There is a wide variety of free and premium accounts to choose from, and many include features that simplify company operations, such as invoicing and customer management. What you need to know about limited liability business bank accounts and how to create one is detailed below.
Verify that your preferred business account is protected by the Financial Services Compensation Scheme (FSCS).
1. Starling Bank — Best online bank for limited liability firms
Starling‘s fee-free business checking account may be a good fit for limited liability firms. Account maintenance, domestic payment processing, and international transaction costs are all waived.
Get a simple app-based application process with free app, phone, and email assistance available around the clock in the UK. Users may make use of features like automatic business expense categorization, receipt capturing, and foreign payments, as well as connection with accounting software like QuickBooks, FreeAgent, and Xero.
You can also upgrade your account with more features if you're willing to pay extra for them. Business Toolkit lets you make and send invoices, compute tax, record your VAT, and file your VAT report.
Financial Services Compensation Scheme insurance will also be in place to safeguard your funds.
2. HSBC — HSBC Kinetic Current Account — Top traditional LLC bank account quickly and easily
The HSBC bank Kinetic account is ideal if you need a business account for a limited company quickly and easily.
You can get an overdraft of up to £30,000 and we won't charge you a monthly fee for the first year. In addition, you may open a company savings account or use a business credit card.
Direct debits and standing orders can be managed, debit cards can be frozen and unfrozen, transactions can be automatically classified, and a monthly cash flow summary can be seen.
Checks may be deposited digitally and payments of up to £25,000 can be made daily using this app. Business call-in banking allows for larger transactions. Your mobile phone or computer may also be used to access the account.
3. Lloyds Bank — Business Current Account — Popular UK business bank account for LLCs
Lloyds Bank's Business Current Account is a top pick for limited liability companies in the United Kingdom.
Their new business account comes with free basic banking services for a year and access to a specialist company management team. All incoming and outgoing electronic transfers from the account are free of charge.
Company Finance Assistance, an online accounting software that can be integrated with your company accounts, will also be available to account holders for a free three-month trial.
Use their service to keep track of invoices and VAT submissions. Lloyds Bank Academy, where you can have access to helpful resources like free tools and seminars, is another perk. Your company's annual revenue must be less than £3 million, and you must either be a sole proprietor, a partner in a firm, or the director of a corporation to qualify for this account.
Despite them being a traditional bank, the account application and management process is entirely digital.
4. Tide — Business Current Account — Choice business bank account for freelancers and sole traders
Tide welcomes businesses of all types, including limited liability corporations, to open a business account.
You can select from one of four price tiers, including a free tier, to find one that works for your business. The most costly package gives you access to everything: a dedicated account manager, a 24/7 legal hotline, cash back on card purchases, and three separate expenditure cards for your team.
No matter whatever package you choose, you'll have the ability to integrate your account with popular accounting programmes like QuickBooks, Xero, and Sage, automatically sort transactions into categories, and create, send, manage, and monitor invoices.
Foreign purchases are processed with no additional cost, however, withdrawing cash will cost you £1. It takes as little as 10 minutes to open an account and we do not run your credit. In 2–4 business days, you should get your Tide card.
5. Zempler Bank — Alternative business current account for bad credit
Having negative credit might make it difficult to get a business bank account. When you apply for a loan at a bank, the institution is likely to verify your credit and reject you if you don't satisfy their criteria.
Still, there is hope! Businesses with little to no credit history might benefit greatly from the banking services provided by organisations like Zempler. When you apply, they won't look at your credit history. Your contact information is the only thing they need to confirm.
Limited company bank explained: The Verdict
While setting up a limited corporation in the United Kingdom has its advantages, it also requires you to abide by the law.
Financial transparency, compliance, and the correct administration of corporate money are all bolstered by the establishment of a separate business bank account.
By keeping business and private money separate, limited firms may increase their legitimacy, security, and efficiency.
All limited liability firms must comply with this law and should seek advice from banking experts when opening a business bank account.
Can we recommend the ‘top-pick’ business checking account?
Monzo and Starling Bank tied for first place as the banks small company owners are most likely to recommend to other small business owners in the current CMA business banking study.
Also Read: Monzo Vs Starling (+ Pros & Cons) – Which is Better in 2024?
When it comes to online and mobile banking, Starling Bank has emerged victorious against Monzo.
For commercial loans and overdrafts, however, Handelsbanken, a Swedish financial institution, came out on top. Additionally, Handelsbanken ranked first in both customer service and account management.
