How Do Business Current Accounts Work?

Learn what separates business bank accounts from personal bank accounts.

Updated: June 5, 2024
Matt Crabtree

Written By

Matt Crabtree

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If you're in charge of running a business, business bank accounts (also commonly referred to as business current accounts) are definitely something you want to familiarise yourself with.

In essence, these are a kind of bank account that your business will use for any kind of financial needs you might have, whether that's for all your various expenses or so you have somewhere other people can pay you.

We'll come onto this in a bit more detail soon, but they're actually available for all kinds of business entities.

From sole traders to limited companies, so that's why we'll be covering all things to do these types of bank accounts throughout this article — exploring how they actually work and what makes them so useful when managing all your business finances.

The Basics of Business Current Accounts

Put simply, a UK business current account is more or less just like your average current account for personal use, but the main difference here is that the former is more of a specialised financial service that's provided by the banks and other kinds of financial institutions so that your specific business needs can be met.

Ultimately, you'd want to use one of these accounts as the main place that you're taking care and managing all of your business finances — whether that's simply just ensuring all of your transactions are properly organised or that your financial records are always accurate.

The best part about these kinds of accounts is how versatile they are, as regardless of whether you are a sole trader/freelancer or have a much more important role as the director of a limited company, you'd want to have a business current account to manage your finances.

At the end of the day, both business and personal current accounts work pretty much exactly the same — in that they provide you with funds whenever you need them promptly and usually come with some kind of interest fees — but there are still a few major differences.

For example, although this is fairly similar to personal current accounts, there are a bunch of different business bank accounts that are geared towards specific kinds of businesses and sectors, which we'll be covering now in this next section.

Types of Business Current Accounts

So, generally speaking, you'd never really sign up for just a ‘business current account' — you'd always hone in on one particular kind of account since they come in various forms, each of them being unique to what a different kind of business is looking for.

Having said that, there are still some usual suspects/slightly more common kinds of current accounts out there that make business banking easy — sole trader, partnership, and limited company business current accounts. Let's break each of these down in a little bit more detail.

Sole Trader Business Current Accounts

Sole traders are basically anyone running a business as an individual rather than with a major team behind them (take a look at freelancers or sole proprietors, for instance), and they tend to have fairly unique banking needs as a result of this.

So, for these kinds of people, a business current account mainly offers a simple and flexible experience that's primarily designed to help them manage all of their personal and business finances in separate places.

Naturally, things can get pretty complicated in terms of accurate financial record-keeping and tax purposes whenever you're trying to merge all of your business finances with anything going on in your personal life, so these accounts are generally a must-have for any sole traders out there.

Furthermore, sole trader business accounts often come with a bunch of different features that can help them with banking in general — whether that's access to online banking, direct debits, or even account management tools that are compatible with various kinds of accounting software.

Obviously, these are incredibly useful, but they're not exactly unique to sole trader business bank accounts in particular, as we'll come onto shortly.

Partnership Business Current Accounts

Aside from sole traders who, naturally, run their businesses by themselves, business bank accounts are also perfect for anyone who is in a partnership with a few other individuals or entities.

Obviously, this is not an issue that's limited to joint business bank accounts in particular, but joint bank accounts, in general, can be slightly problematic for a few different reasons, not least because you don't actually have full control over your finances in the same way you would if you were operating by yourself.

Furthermore, you've also got to worry about the impact on your credit score if, say, the joint business bank account that you've opened for your company is in your name and not one of your other partners.

It goes without saying that you're responsible for all of your own actions and how they might impact your credit rating when you're handling your own personal bank account, but for joint ones, any bad practices (high credit utilisation, late repayment fees, etc.) will all come back to you if your other partners aren't pulling their own weight.

Still, at the end of the day, these accounts are super useful for you and your partners when it comes to accessing all of the same funds, which essentially just streamlines the whole process and makes it a lot easier to manage all of your finances together or even just monitor transactions and cash flow in general.

In addition, a partnership business current account is also able to accommodate all the different kinds of financial needs all of your separate partners might have within the business.

This is definitely a more collaborative, trustful way of handling your business together than, say, you and each of your partners all having separate accounts and constantly needing to communicate with each other.

Limited Company Business Current Accounts

Limited companies are basically a separate legal entity from whoever owns them, so they're also going to need a business account that reflects the fact that they don't represent one specific person.

Now, similar to the other two options we've already covered, business current accounts for limited companies come with a few different features that are geared towards corporate finance management.

More specifically to other kinds of bank accounts — especially personal bank accounts, which you'd never want to use to handle all the finances for a limited company.

To get specific, these kinds of accounts are a lot more suited for managing slightly more complex transactions — things like domestic and international bank transfers and even payment processing, for instance.

Aside from this, though, you'll generally find that limited company accounts are always going to help you stay compliant with all the different kinds of regulatory bodies you need to adhere to when you're running a business in the UK, such as the Companies House.

So, for any slightly larger businesses out there, you'd definitely want to consider applying for one of these bank accounts over the other two that we've listed.

Features of Business Current Accounts

Right, so now that we've walked through what the most common kinds of business current accounts are, let's explore them a little bit deeper by covering what you'd generally expect to find whenever you open a business bank account.

Online Banking

It's not specific to business bank accounts in particular since personal accounts offer this too, but it goes without saying that online banking is an incredibly useful feature of modern business accounts.

Essentially letting you access all of your account information, make transactions, and generally just manage all your business finances from literally wherever you want so long as you've got your phone handy.

Naturally, this is a particularly useful feature if you ever need to keep a close eye on your finances in real time, and you'd generally expect this feature with each of the three main types of business accounts we've covered.

Accounting Software Integration

This is something that you'd generally expect a lot less with personal bank accounts, but the majority of business ones come with some kind of integration capabilities to various accounting software so that you're able to streamline a lot of your financial management duties.

Not only is this generally effective when it comes to tax season, but being able to integrate all of this data is massively helpful for importing your business transactions, tracking expenses, and even generating financial reports at the end of all this.

You're definitely saving a lot of time and reducing your overall risk of running into any errors when keeping records of all your finances.

Service Quality Survey Results

Naturally, service quality is pretty useful when it comes to business banking, so you should definitely research how effective various different banks are at this before signing up.

Ultimately, just so you can find out how well they're going to serve their business customers and so you can get feedback on things like account fees, customer support, and their online banking features.

Account Fees

The severity of them is naturally going to depend on whichever bank you've gone to and what specific features and services you've opted for, but as a blanket statement, business current accounts tend to come along with various kinds of account fees just for using their platform.

Whether that's monthly fees, transaction fees, or even just charges for any additional things like overdraft facilities.

As such, it's worth being prepared and knowing what the fee structure and terms of the business account you choose look like prior to signing up so you can guarantee that they're going to be cost-effective for your company's financial needs and budget.

Related Guides:

FAQs

Do I Need a Business Bank Account as a Sole Trader?

How Do I Protect My Business Funds in a Business Bank Account?

Can I Switch My Business Bank Account to a Different Bank?

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