Do I Need A Business Bank Account?

Table of Contents

Who needs a business bank account?
Does a sole trader need a business bank account?
Does my limited company need a business bank account?
Does my partnership need a business bank account?
Do charities need a business bank account?
Why you should use a business bank account
Can I use my personal account for business banking?
Can my business have multiple bank accounts?
What happens if I don’t have a business bank account?
What do I need to open a business bank account?
Choosing a business bank account

Limited companies, limited liability partnerships and limited partnerships must have a business bank account
Sole traders and general partnerships can sometimes use personal accounts for business, but it might not be a good idea
Business bank accounts make monitoring your business and tackling tax returns much easier

A business bank account can make handling your business’s finances feel like less of a chore. The tools and features included in a business bank account are often unavailable to personal banking customers and are designed to help businesses like yours tackle every financial hurdle you encounter. For many businesses, these types of bank accounts are also a legal requirement.

Promotion

Virgin M Account for Business

For businesses with a turnover of less than £1 million, the M Account for Business gives you free day-to-day online business banking for all your everyday needs.

Learn More

Who needs a business bank account?

You NEED a business bank account if…

Your business is a limited company registered with Companies House. It is a legal requirement for limited companies to have distinct finances from their owners.
Your personal bank account does not allow business transactions.
You want to take advantage of banking features designed for businesses.
You want to build your business credit rating.
You want a business loan or credit card.
Managing your business’s finances is becoming complex and time-consuming.

You don’t NEED a business bank account if…

Your business finances are simple and easy to manage.
You are a sole trader, self-employed, a freelancer or in a general partnership.

Does a sole trader need a business bank account?

Sole traders are not legally required to have a business bank account. This is because, in the eyes of the law, your personal finances and those of your business are considered to be the same. This means sole traders can use a personal bank account for business purposes, if the account provider allows.

That said, using a personal account to manage your business finances can complicate matters. In particular, the combination of your personal and business finances in one account can make it harder to monitor business performance, track outstanding payments, and file tax returns.

Some providers have specific sole trader bank accounts tailored to the needs of sole traders, freelancers, self-employed people and small business owners.

Does my limited company need a business bank account?

Every limited company is required by law to have a business bank account. This is because a limited company and its owner are distinct legal entities. As such, any profits are owned by the business, not the owner. The same goes for debts and assets.

Trying to track what money belongs to the business and what belongs to you would be a nightmare. That’s likely why it is a legal requirement.

Fortunately, many providers offer specific limited company bank accounts and opening one is relatively simple.

Does my partnership need a business bank account?

Whether your business partnership needs a business bank account will depend on the type of partnership you have:

Limited liability partnership (LLP): This type of business is a separate legal entity to its owners and so legally required to have a business bank account.
General partnership (GP): This type of business sees partners sharing profits, which are taxed as income. As this means the business is not legally distinct, a business bank account is not mandatory.
Limited partnership (LP): This type of business, which is formed by a combination of limited partners and general partners, must have a business bank account.

Opening a business bank account for your partnership can be a good idea, even if it is not mandatory. Being a partner means sharing responsibility for the business, so using a joint business bank account is probably a better option than relying on a partner’s personal account.

Do charities need a business bank account?

Charities don’t legally need a business bank account, though it’s generally considered best to have one. Having a dedicated account makes everything transparent, looks more professional and can help protect your charity’s funds.

A separate account is also needed if you wish to register for Gift Aid and reclaim tax, and could help if applying for funding.

Why you should use a business bank account

Some of the main benefits of a business bank account include:

Tax returns will be easier to file if your business and personal transactions are separate.
Your business will appear more professional to customers and suppliers.
Business bank accounts usually include useful extras, such as free accounting software, invoicing tools and digital receipt capture.
If you need a business loan or business credit card, you might need a business bank account to be eligible.
Many providers have dedicated relationship managers who offer direct customer service and advice for business customers.

A few potential drawbacks you should also consider include:

Applying for and managing a business bank account might mean more admin.
Some business bank accounts include a monthly fee or charge for each transaction. However, there are some free business bank accounts.

Can I use my personal account for business banking?

Sole traders can technically use a personal current account for business in the UK. However, some providers do not allow customers to use personal accounts for business.

In addition, opting for a business bank account can make administrative tasks, like sorting your tax return, much simpler. As such, using a personal account for business banking does not always make the most sense.

Can my business have multiple bank accounts?

There is no limit on the number of business bank accounts you can have. But is there any point in having multiple accounts?

You could use multiple business bank accounts to take advantage of special offers available from providers. You might also want to split your money between accounts for practical reasons, such as having a business savings account and using another as a current account.

That being said, juggling these different accounts might be an administrative headache. For example, it could complicate things when it comes time to submit your tax return to HMRC.

What happens if I don’t have a business bank account?

If you don’t have a business bank account and your business is set up as a limited company, as is legally required, you risk getting in trouble with HMRC and Companies House. There could be tax implications and maybe fines.

If you’re a sole trader, there’s no legal obligation to have a separate business account, but it could make managing your business finances more complicated than it needs to be.

What do I need to open a business bank account?

To open most business bank accounts, you must be:

age 18 or above
a resident of the UK

You will also need some documents and details to get started, such as:

proof of ID
proof of address
Companies House registration number (if applicable)
business verification documents (bank statements, bills, invoices, etc)

Don’t be intimidated by the details and information you need to provide. If you are worried, learn more about how to open a business bank account to make the application as stress-free as possible.

Choosing a business bank account

There are many different types of business bank accounts – which one suits you will depend on the nature of your business, and your particular wants and needs. Some accounts may be aimed at startups or limited companies, while others may have certain features, or no fees. Taking the time to find the best business bank account for you is key.

Dive even deeper

Image source: Getty Images

Do I Need a Business Bank Account?