31 August 2024
7 min read
In this article, we’ll guide you through the process of opening a business bank account. We’ll cover what a business account is, who needs one and how you can go about applying for one, if applicable.
A business bank account is an account that is typically set up by sole traders, limited companies and other types of businesses.
Some businesses, such as those run by sole traders, are not legally required to open a business bank account. However, it can be a good idea to have one to keep your business transactions separate from your personal funds.
Business bank accounts can help business owners track how much they spend and keep a clear record of their finances. These accounts also make filing taxes a simpler process at the end of the financial year.
As the name suggests, a personal current account is exactly that: an account set up to manage your own personal finances.
Some business owners, such as sole traders, may opt to use their personal account for business purposes. However, it can be harder to keep track of finances this way.
Some business bank accounts also come with perks that may be unavailable to standard current account holders.
To meet the criteria for opening a business bank account, you will likely need to register your business.
If you have a limited company, you usually need to provide proof of your Companies House registration. The bank account will be registered to your incorporated company, rather than to you as an individual.
Sole traders are not required to register with Companies House. However, they are required to notify HM Revenue & Customs (HMRC) of their self-employed status. They will also need to register for a Self-Assessment tax return before they can trade.
Depending on your business, there are multiple factors to consider when choosing a bank account that’s right for you.
For example, some accounts may be more suitable for businesses with a high cash turnover. Other accounts may impose fees for certain transactions.
It’s also worth considering that some banks are only available digitally, with no physical store locations. If face-to-face communication with your provider is important to you, you may wish to consider this when selecting your bank.
Lastly, it’s always a good idea to check the Terms and Conditions of each provider before finalising your choice.
If you’re just starting out as a small business owner, you may wish to look for a provider that offers free bank accounts, with no monthly fees attached. Get £200 for opening a new Business Current Account and meeting the eligibility criteria over three months. Exclusive to new Co-operative Bank business customers from 17 January.
Some banks may provide introductory offers or rewards for signing up with them. These may include competitive interest rates or reduced fees on certain transactions.
If your business mostly uses physical cash, it’s worth investigating whether a bank applies fees to cash transactions.
Some providers will offer low to no cash depositing fees. You may wish to opt for these if your business plans to regularly make transactions in cash.
Some banks, including The Co-operative Bank, offer specific accounts for charities, credit unions and community-interest companies.
While this varies between providers, charity bank accounts can have tighter eligibility requirements. Most banks will require you to be a registered charity. You may also need to meet certain criteria, such as having an annual income below a specified amount.
It can be helpful to shop around to ensure you’re getting an account that meets your needs. Some banks may apply certain features to charity bank accounts. These features can include free or reduced transaction fees, enabling the charity to put more towards its cause.
Business bank accounts sometimes offer lower interest rates than personal bank accounts, yet fees can be significantly higher.
Some banks may charge businesses a standard fee for having an account with them. There are also providers who offer free banking during the initial sign up for a designated period. This can vary in length, depending on the provider, but it’s usually between 12 and 30 months. After this period, the account will be charged a fixed monthly amount.
Some business bank accounts may remain free of charge but will have different costs associated with them.
The most common fees business bank account holders can expect to see are for:
Depending on your business’s activities, it’s helpful to shop around and check multiple provider tariffs before committing to a bank.
Depending on the type of business you’re starting, you’ll likely need to prepare certain documents before your account can be approved.
Firstly, in the case of a limited company, it’s important to have the necessary identification ready.
Depending on your provider, this will likely include proof of your identity (such as a passport or driver’s license), along with proof of your address. This can be in the form of a bank statement or utility bill.
You will then be required to provide details of your business. These can include your business’s registered address and Companies House registration. In some cases, you may also need to provide your business’s expected yearly turnover.
When setting up as a sole trader, you’ll typically be required to provide proof of identification and your address. You’ll also usually be asked for information about your business. This can come in the form of your business’s name and the nature of its activities.
When you’re ready to open your business bank account, it’s important to ensure you have all the necessary documents available. This will help to prevent any delays.
Depending on the provider, the process can usually take anywhere between 1 to 4 weeks.
The bank will be required to carry out a series of background checks. Several factors may impact the speed of this. For example, applying as a sole trader tends to be a quicker process than setting up as a limited company. If you already have a personal current account with the bank you’re applying for, this can also influence the processing speeds.
Some banks may require you to have a phone or in-person appointment to complete your application.
While the process can vary depending on your provider, the procedures generally remain similar from bank to bank.
First, it’s useful to compare the types of business bank accounts available on the market. Consider your business’s activities, and what would be most suitable for the transactions you expect to make. Take note of any applicable fees, as you may pay more than you need to by selecting a provider that doesn’t align with your goals.
Next, you’ll be required to submit an application form to your chosen provider. This may be online or in a branch.
Following the submission of your forms, your bank will likely be in touch to request verification. Here, you’ll need to provide any necessary documents, such as photo identification and proof of address. If you have a limited company, you may need to provide confirmation of your Companies House registration.
If everything is in order, you can expect to receive your new account number, sort code and physical card, if applicable. You can begin to use your new business bank account straightaway.
View all our business bank accounts.