You already have a personal bank account, so why do you need to open another for your business?
Once open, a business bank account will change your business financials for the better. Your finances will be separated from your personal account and managing your tax liabilities will become much easier.
If you are starting your first company or operating as a sole trader and your business is growing and you’re looking to hire employees, you’ll need to open a bank account.
In this ultimate guide, we explain how you can open a business bank account, why you need one and how you can get a UK business bank account as a non-resident.
Table of Contents
- What is a Business Bank Account?
- What are the Benefits of Having a Business Bank Account
- Business Bank Accounts For Sole Traders
- Business Bank Accounts For Companies
- How to Choose Business Bank Account?
- How long does it take to open a business bank account in the UK?
- How to Open a Bank Account as a Non-Resident
- What is a Virtual Bank Account
What is a Business Bank Account?
Simply put, a business bank account is just like your personal bank account, but it’s one you open solely for your business income and expenditure.
It is common for banks to charge their customers for business transactions. This fee may be required every time you issue a cheque, make a bank transfer, set up a standing order or direct debit or even simply deposit cash. This is where business accounts differ. Business accounts can also range from that very simple money-in, money-out account to an account that helps you issue invoices, manage payroll and help with your accounting and tax return.
What are the Benefits of Having a Business Bank Account?
As a business or limited company/partnership, a business bank account is a requirement to keep track of your tax reports. However, for sole traders, though not a legal requirement it may help you to separate your personal and business finances.
Here are some of the main advantages to setting up a business bank account:
- Time-Saving
Having a separate business bank account from your personal current account can make doing your business accounting and tax returns more efficient, saving you time when it comes to bookkeeping.
- Credit Rating
For businesses, having a business bank account can help build a credit rating for your business, which can help with the success of any future applications for loans and credit cards.
- No Transaction Limits
Some personal bank accounts place restrictions in their terms and conditions on how many cash transactions your account can manage. If you fall foul of these rules due to using your personal account to manage your business finances, you risk having your personal account closed. Business bank accounts don’t have these limitations.
Business Bank Accounts For Sole Traders
As a sole trader, you can use your personal bank account for all business transactions since for tax purposes HMRC treats both business and personal income in the same way.
On the other hand, many small businesses and sole traders that are not incorporated may find it easier to keep on top of their finances with a dedicated sole trader bank account.
Sole trader bank accounts are simply business accounts. Most high-street banks offer them and they work in a similar way to a personal account. Most offer banking features, including a debit and credit card, online banking, a business cheque book and overdraft facilities.
Personal bank accounts and sole trader bank accounts also have many differences. The main one is that business bank accounts generally pay much lower interest rates than personal bank accounts and fees can be significantly higher.
Expert Tip:
If using your personal bank account for business, check the terms and conditions. Banks can insist you stop and even close your personal account if you continue to use it for business. Banks can pick up on transaction levels such as cash and cheque deposits over-the-counter, to ascertain whether or not your personal account is being used for business.
Business Bank Accounts For Companies
It is a legal requirement for all registered companies to have a business bank account.
Since generally your business should be kept separate from your personal finances, any sums accrued must be dealt with separately. Therefore, any debts, taxes and transactions should come not in your name but under the business’ name.
When withdrawing money from your limited company, you will find that banks often impose strict terms. You can receive dividends, take a salary or claim back expense you’ve personally paid. With a business bank account, you will be able to find what works best for you, while ensuring what you are doing is completely legal.
How to Choose Business Bank Account?
All business bank accounts are not created equal.
Time and effort spent finding out the best business bank account for you is time well spent. Switching bank accounts during the later stages of your business can be a tedious process. Most banks offer accounts specifically for businesses and certainly all the well-known high-street banks do so. Many now also offer a choice of branch and online accounts.
There are some aspects you need to consider when choosing your business bank account provider:
- Monthly charges: Some business accounts charge a monthly or quarterly fee for banking with them.
- Interest rates: Higher interest rates will mean that you get a higher return on your savings.
- Transaction charges: Charges are made to handle money moving in and out of your current account. This usually includes physical transactions (paying in cash or making cheque payments) and automated payments, including direct debits and standing orders.
- Internet banking: While most business accounts provide internet banking, there are some exceptions, so it’s best to make sure beforehand.
- Branches: Being able to visit the bank in person will give you several advantages, including easily depositing money from your business. Note that there are business bank accounts with no physical branches, so if this is a priority, it may be worth finding alternative providers.
Expert Tip:
Don’t ignore a bank’s customer reviews. Make sure you do your research into what other businesses are saying about the bank’s business account service. If a bank is getting more than its fair share of service complaints, it might be wise to avoid it.
Most banks also try to attract new business customers with various perks, so feel free to explore what’s on offer. To make this choice easier, we have created a separate post on The 9 Best Business Bank Accounts in the UK.
How to Open a Business Bank Account in the UK
As explained, business bank accounts are offered by most high street banks.
It’s easy to open a business bank account with your present bank but if you look elsewhere you may be able to save some money.
To open your business bank account, you will need the following:
- Proof of identity (your passport or driving licence)
- Proof of address (such as a utility bill or bank statement)
- Business name and registered address
- The nature of your business.
You may also be asked to provide an estimated turnover for the business, details of any shareholders and the amount you are personally investing in the company.
How Long Does it Take to Open a Business Bank Account in the UK?
The approval time for opening a business bank account depends on the business circumstances.
Set up your business bank account In as little as 15 minutes using an online application or through the bank’s very own app.
If you choose a digital bank, you’ll often be able to open your account on the same day or within a few days if not. Naturally, in the present circumstances high-street banks may be taking longer than usual to process business bank account applications, sometimes up to several weeks.
How to Open a Bank Account as a Non-Resident
Even though it may seem daunting as a non-resident to set up your bank account, it is very possible.
If you live or work overseas but have business interests in the UK, the main advantage of opening a business bank account in the UK is that it will make doing business in the UK much more comfortable. It will also optimise any international transaction fees you may incur.
Non-residents are legally entitled to business bank accounts, though the process may take longer as a result of the British anti-money laundering regulations. There are two main ways you can open a UK business account as a non-resident:
- Residency
One way to get a bank account is to have a registered UK address. Proof of residence is needed to open your bank account. Simply showing a utility bill with your name on it will suffice. However, you will need to spend a minimum of 6 months in the UK which may be costly. There are other options available for non-residents should this prove difficult.
- Virtual Bank Account
You can open a virtual bank account without ever having to step foot in the UK. This may make the process easier for non-UK residents.
It involves opening a business bank account with a large and reputable British bank. These banks are big, so they are more flexible and know how to work with different clients, including non-residents. While every bank is unique, there are two documents each of them will ask for to open a business bank account: a valid passport or a national ID card and proof of address in your country of residence.
For a more detailed guide on how to open a business bank account as a non-resident, read our blog Business Bank Account for Non-UK Residents.
For professional advice on starting a business, including setting up a business bank account, contact Mint Formations today!
