What do I Need to Open a Business Bank Account?
Opening a business bank account is a much smoother process now that online accounts have become commonplace. However, you will still need some key documents to apply for one.
In the not so distant past, you might have had to visit a bank branch or post hard copies of documents to open a business bank account. Now, thankfully, the process is much faster and easier.
With some of the newer fintechs and challenger banks, you can do everything online or through an app on your smartphone. But you still need the right documentation at the ready to make the process as smooth as possible.
What is a business bank account?
A business bank account is very similar to your personal current account, in that it lets you carry out day-to-day banking related to your business, from receiving payments from clients, to paying suppliers and staff, to sending money internationally. Some allow you to sync up with accounting software like Xero, Sage or QuickBooks to make managing your business finances easier.
If you have a UK limited company, you must have a business bank account that’s separate from your own. However, it’s often good practice to do this even if you’re a sole trader. In addition to keeping your business and personal finances separate, it makes things easier when it comes to your tax return.
Even though it may not be a legal requirement, some banks may specify in their terms and conditions that you must not use your personal account for business transactions.
What documentation do I need to open a business bank account?
The identification documents you will need will depend on how your business is structured. If you’re a sole trader, you will need photo ID such as a driving licence or passport, and proof of address such as:
- a recent utility bill.
- bank statement.
- mortgage statement.
- council tax bill.
- correspondence from HMRC.
You’ll usually need originals that you’ve received by post, not copies printed from the internet.
If you’re running your business as a limited company, as well as photo ID, you will need:
- proof of address for each company director.
- your company registration number with Companies House.
- your certificate of incorporation.
- your VAT registration number if you’re VAT registered.
Sole traders and limited companies might also need other documents to prove the nature of their business, such as:
- an invoice.
- registration document.
- a letter from your accountant.
- the address where your business trades from or is registered.
- the date you started trading.
If your trading and registered address are different, you’ll be asked for documents to prove both.
If you’re switching bank accounts, you’ll also need your existing bank details.
There will usually be checks made on anyone who has a significant share in your business or who is authorised to access your bank account.
Where can I find my Companies House registration number?
You can find your Companies House registration number by searching your company details on the Companies House register here, or on the incorporation documents you received when you set up your company. You will also find it on other letters from Companies House, such as if you’ve changed your company’s registered address, or on correspondence from your accountant.
How do I estimate turnover?
Banks may want to know how many employees you have, where your business income comes from and how much you plan to pay into your bank account over the next year. They may also ask you for details of your company’s annual turnover, or an estimate if you’ve been trading for less than a year.
Turnover is the total sales your business has made over a financial year (it’s not the same as profit, which is your earnings once business costs such as expenses and overheads are accounted for). You can work out turnover using whatever system you have in place to record your sales – it could be an Excel spreadsheet (use the ‘sum’ tool to add up your sales), or cloud accounting software (there should be an option to run a report showing turnover).
If you need to estimate your company’s turnover, try to work out what your fixed costs will be, such as staff and inventory, not forgetting your own wages, and figure out how much you will need to earn to break even. You could also research similar successful businesses that are up for sale to see their key numbers.
Do I need to prove I have a clear credit history?
You may need to pass a personal credit check to be able to open a business bank account, even if you’ve got a limited company that’s a separate financial entity from you personally.
Some banks require you to have a personal current account with them to be able to open a business account. This is because they can use the personal data you provide to check your eligibility for their business account.
Before you apply, check your credit report for free to find out if there are any nasties on your file that could affect your application, and then take steps to sort them. Make sure you are on the electoral roll, and that you’ve registered your company with HMRC before you apply for a business bank account. If you have a poor or limited credit history, you may be accepted for a basic business bank account without a credit check.
Some banks won’t grant business accounts to companies operating in certain industries because they consider them to be higher risk. Examples of industries and businesses that can be excluded include restaurants, nail bars, construction businesses, used car companies, video game arcades, cryptocurrency dealers and chemical manufacturers. This is another reason why it’s good practice to read all the eligibility criteria and terms and conditions before making an application for a business bank account, as you don’t want to risk a rejection and a black mark on your credit file.
» COMPARE: Business Bank Accounts
Image Source: Getty Images
Hannah is an award-winning journalist with a background in the trade press. She writes about finance, asset management and business for Shares, Citywire, FE Trustnet, and interactive investor. Read more