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Business bank accounts 🏭

Are you thinking about starting a business? Or maybe you’re already up and running and looking to find out a little more about business accounts, where you can find and compare providers. Whatever your reason, whether you're an established limited company, freelancer, sole trader, or an up-and-coming start-up, this short guide to all things business bank accounts will help you on your way. If you already know what you need to do, and want to find and compare potential business account providers, take a look at our comparison table here.

What is business bank account?

Definition of Business Banking

A business bank account is a current account exclusively designated for day-to-day business transactions, related to your operations, like paying suppliers and employees. Business bank accounts are generally accessible to various business structures, including sole traders, partnerships, limited companies, and others. They work similarly to personal current bank accounts, only of course with the distinction that they are purely for business-related purposes. Having a business bank account allows you to keep your business transactions separate from your personal finances, and may be mandatory depending on the business structure you operate with.

Do I need a business bank account?

You may not need one, depending on your business structure. If you operate as a sole trader or are a partner in a partnership, you have the option to handle your business finances through a personal bank account if you choose. This of course is not to say these types of businesses can’t have a business account. Many such businesses of this type opt for an account for several reasons we’ll cover below. On the other hand, it’s important to understand, if you hold the position of director in a limited company, having a business bank account is mandatory and you need one to operate.

Why do limited companies need a business bank account?

A sole trader is viewed as the same legal entity as their business, meaning that if the business incurs debt, the individual is also affected. In contrast, a director of a limited company is distinct from the legal entity of the company they oversee. The limited part of Ltd represents limited liability. This means if the business owes money, the director is separated from the company and not responsible for the debt like a sole trader would be. As the company is treated as a separate entity, it is required to maintain a dedicated bank account independent of the personal finances of the individuals managing it. It is also required from a taxation perspective.

Is a business account free?

There are several business bank accounts available free of monthly fees. They’re usually the basic version of a provider’s offered business accounts, with somewhat limited features, and may have some associated fees. These fees might be transaction fees, and the fees for business bank accounts vary among providers, making it advisable to evaluate which fee structure aligns with your cost-effectiveness criteria. Commonly, most business accounts have some form of monthly fee, especially for those with more advanced features like savings accounts. As a result, consider your anticipated account usage over a specific period and realistically assess which features will be utilised and what fees you might incur. It may be cheaper in the long run to pay more in a monthly fee if the other fees are lower in the plan. For those with minimal monthly transactions, a pay-as-you-go tariff might be suitable. Conversely, if your business engages in numerous transactions, an account with an all-inclusive monthly fee could prove more fitting for your needs.

Benefits of a business account

Save time – If you’re one of the 75% of the UK's self-employed workforce that uses a personal bank account for business transactions, having a dedicated business account may save you time separating personal and business expenses. Using a business bank account can help you manage your finances more efficiently

Accounting – The clear distinction between personal and business transactions can help businesses in streamlining the bookkeeping process. This ensures the accurate recording of both business income and deductible expenses, and appropriate tax deductions of specific allowable expenses from your business income. Utilising a business account plays a crucial role in identifying and categorising these expenses and also helps contribute to a more accurate financial picture for your business. Many such business accounts have accounting software integrations, making the job even easier.

Access to funding – Having a business account allows you to develop a credit history for your business, potentially making it more straightforward to secure bank financing like a loan, overdraft, or business credit card as your business grows and scales.

What do I need to open a business account?

To open a business account you will need to meet a few requirements, depending on the provider you choose. Make sure you have the following information readily available before you sign up, which will almost certainly be required. Additional information may be required to open your account.  

Proof of ID - For all company directors if you’re a limited company, or the person opening and operating the business if you’re operating under a different business structure. A valid passport or driver’s licence is usually what’s required.

Proof of address - You’ll then be required to provide proof of your business address. The provider will give you a range of documents you could use, such as a recent utility bill or a driving licence. Usually, you’ll need to provide an original document for checking.

Your business details - general business information, including the registered address and up-to-date contact details as well as the Companies House registration (for limited companies and partnerships). You’ll also likely need to provide your expected yearly turnover and the nature of your business.

How to choose a business bank account

Selecting the right business bank account for you involves considering various factors before reaching a decision. Much of this will be related to your specific business circumstances, and how you operate. Nevertheless, here are a few things to consider.

Monthly Fees: Evaluate whether the business account imposes a monthly or quarterly fee for its services, and if your business gets value from the service as a result.

Transaction fees: Assess the fees associated with sending and receiving money, as well as general account usage such as automated transactions such as direct debits and standing orders. Transaction fees usually decrease with more advanced account plans with higher monthly fees.

Account Management: Confirm the availability of your preferred method of banking, whether it be online, in-app, or even i-branch. Each provider’s account management servicing is different and may even vary across different business accounts from the same provider.

Access to finance: More established financial institutions will likely have more business banking products and services available to customers, than for example from an emerging FinTech. If you foresee some kind of financing requirements, like a loan to fund product development, be sure to consider if the provider you’re considering has the capabilities you may need.

Introductory Offers: Some providers may present short-term incentives upon sign-up, such as competitive interest rates or free banking, lasting typically up to a year. Make sure to factor this into your longer-term decision-making as to whether it is still a suitable provider.

How long does it take to open an account?

Typically, the process of opening a business account takes anywhere from a couple of days to a month. This duration allows the bank to conduct various checks to verify your identity, business details, and any directors associated with your company. Certain factors can impact the timeline, such as your nature of business and any existing relationship with the account provider. Each provider, and business bank account application is different and as such, timelines can vary greatly.

How do I find a provider?

Whether you’re a freelancer, start-up, sole trader, or established business, if you’re looking to open a new business bank account, or switch your existing one Pluto’s business banking comparison is a good place to start. Here you’ll be able to review fees, account management variations, and other information to help you find the right provider for you. Head over to the comparison page here and find some of the best providers of business bank accounts in the market today.

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