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Table of Contents
KEY TAKEAWAYS
- Finding your perfect business bank account is quick and easy with NerdWallet’s comparison tools.
- A business bank account can make organising your finances easier, taking a lot of the stress out of tasks such as completing a self-assessment tax return.
- You could benefit from useful features like invoicing tools, accountancy help and account managers.
If you’re a freelancer or a sole trader, you may be wondering whether to set up a business bank account. It may seem easier to just use a personal bank account for your business finances, especially when you consider that many business bank accounts will charge certain fees for using them.
However, there are many advantages to finding a business bank account and keeping your business finances separate.
Compare the latest business bank accounts from top UK providers, including:
Benefits of a business bank account
Most businesses need a business bank account. But even if it’s not essential for your business, these business bank account benefits can make opening an account well worth it.
They’re designed for business use
This may sound like an obvious point, but business bank accounts are specifically designed for businesses to use.
While a sole trader could use a personal current account for their business finances, some providers won’t allow you to use your personal account for business use. Consider using a sole trader bank account instead.
With a business account, you know for sure that you can use it for business. However, bear in mind that some providers may set restrictions on the type and size of business that they allow to open an account.
It’s easier to organise your finances
Having a separate account for your business can help you manage your cash flow and fill out your tax return.
Initially, it may seem easier to use your personal account, but this is likely to cause more problems for you in the long term.
If you use a personal account, it might be difficult to figure out exactly how much money your business is spending and receiving. This will make it more time-consuming to fill out your self-assessment tax return.
By having a separate business account, you can easily view your balance, track the income and expenditure of your business and see what payments, if any, you have outstanding. You might also benefit from free accounting software, or a free trial, depending on who you choose to bank with.
Furthermore, if HM Revenue & Customs (HMRC) needs to look at your business finances for any reason, it can just look at your business account rather than trawling through your personal transactions.
Many come with useful features
PPersonal accounts are designed for personal use, but business bank accounts often come with features that can help your business. The benefits can include:
- integrated invoice tools
- ability to upload receipts
- categorisation of your spending
- integration with accounting software
- A dedicated account manager
- account upgrades, for when your business grows, for example
Bear in mind that many business accounts will come with fees, such as a monthly charge or charges for certain types of transactions. However, some will offer free business banking, either permanently or for a limited period.
Details will vary between providers, so check their fee structure before opening an account.
It looks professional
Image is important in business, and having a separate business bank account can help to create a more professional image when dealing with suppliers and clients.
It could help to build up your credibility and make you appear more trustworthy to clients, who may feel reluctant to send payments to a personal account.
You can build up your business credit rating
Having your own business bank account could help you start building up your business credit rating.
A credit rating is important if you want to take out a business loan, business credit card, or other form of finance. Even if you’re not planning on applying for finance at the moment, setting up a business account now can help you begin to build up a credit history for your business and manage your finances responsibly.
Bear in mind that, if you’re a sole trader, any applications for credit will be based on your personal credit score as you and your business are viewed as one and the same. If you recently set up as a limited company, lenders may still look at your personal credit history as you’re unlikely to have built up much of a business credit history.
Even if you have a poor credit score, you can still access business banking by applying for a no credit check business bank account.
You’re prepared if you want to scale up
If your business is still relatively small, you may not feel like you need a business bank account right now.
However, as your business grows, it may become more difficult to manage your finances with just a personal account.
Setting up a separate business account will ensure you won’t need to worry about switching while your business is experiencing other major changes.
Many business banking providers allow you to upgrade your account to access more features, allowing your account to grow alongside your business.
Are there disadvantages of a business bank account?
There are some drawbacks to opening a business bank account, including higher costs. The disadvantages are:
- Monthly fees: Unlike personal accounts, you need to pay for many business bank accounts. However, some free business bank accounts have no monthly maintenance costs, and others have free trial periods.
- Transaction fees: Some business bank accounts charge fees for every type of transaction.
- Short-term admin: To open a new business account, you will need to gather the right information and complete an application. Fortunately, many online business bank accounts can be applied for in minutes.
Who can open a business bank account?
Generally speaking, business bank accounts can be opened by sole traders, directors of limited companies and partners representing limited liability partnerships or general partnerships. Charities and their representatives can also open business bank accounts, though this might be a specific community or not-for-profit account.
Usually, you will need to be aged 18 or over and a resident of the UK. Some accounts for non-uk residents are available.
In addition, different providers have different requirements for applicants. For example, they may require you to operate a particular type of business, maintain balances above a certain threshold or have a small or large enough annual turnover.
Is a business bank account worth it?
You might still not be sure if a business bank account is worth it for your business. While a business bank account is mandatory for limited companies, freelancers and sole traders can choose to stick with their personal bank account.
Though relatively low, the potential costs might put you off, or just the time it will take to open an account. However, the many ways they can strengthen your business and streamline your working life make a business bank account a must-have for small business owners.
Duncan Ferris, Lead Writer and Business Expert at NerdWallet
What our Nerds say…
“If you are unsure whether a business bank account is worth it for your business, consider dipping your toes in with a simple account with no fees. This way, you can sample the benefits of a business bank account without your wallet taking a hit and upgrade to a paid account later if you want to access more features.“
Find your business bank account
Use NerdWallet’s simple business bank account comparison page to find the right account for you in no time. You can also find out more about how to open a business bank account, or how to switch business bank accounts.
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