Page 3 of 3 - Business Current Accounts

A Beginner’s Guide to Business Bank Accounts in the UK What is a business bank account? Business current accounts have similar features to personal current accounts: you can pay money in, transfer money, use a debit card and manage your account online. Certain business accounts have extra features, such as invoicing, payment cards for other employees and integration with accounting software. The main difference between a business bank account and personal bank account is who the money belongs to. This has important tax implications. If you’re a sole trader, you and your business are the same – your business income is your income, so you’ll have to pay income tax on it. But if you run a limited company, your company is legally separate from you. This means your company's income is taxed differently and separately from the money you ‘receive’ or pay yourself as income or dividends from the business. As limited liability partnerships (LLPs) are also separate legal entities, LLP business bank accounts should be separate from their partners’ finances. There are business current accounts available for sole traders, limited companies, LLPs, business partnerships, charities and other organisations, though not all providers offer accounts to all types of businesses. How does a business bank account work? Business bank accounts work in a similar way to personal current accounts. You can deposit and withdraw money, receive incoming payments, use a debit card to pay for goods online or in person, and set up standing orders and direct debits. You can manage a business bank account online, over the phone, via an app or in a branch, depending on the provider and the type of account you choose. How to open a business bank account To open a business bank account, you can usually apply in one of the following ways: in branch online via the provider’s website through a provider’s mobile app Who can open a business bank account? If you’re a sole trader or run a limited company, you can normally open a business bank account. Partnerships, including limited partnerships and limited liability partnerships, may also be eligible. Charities, clubs and societies can open certain types of business bank accounts – it’s worth checking with providers if you want to open an account for one of these. Some business bank accounts have strict eligibility criteria, such as minimum or maximum turnover or trading history. Providers may also have restrictions on which business structures and industries can open an account, so it’s a good idea to look through the terms of an account to make sure you’re eligible before applying. What is required to open a business bank account? To open a business account, you’ll need to show proof of your identity and give the name and UK-based address of your business. Providers may also need other information, such as your industry, how many employees you have and your estimated annual turnover. » MORE: How do I open a business bank account in the UK? How long does it take to open a business bank account? It can take anything from just a few minutes to a few weeks to open a business current account. It depends on the provider you apply to, and how long it takes to complete its checks. Types of business bank accounts There is a range of different business bank accounts available, including current accounts and savings accounts. What’s more, you can choose to bank online or instead opt for a bank with a high street presence. Business current account Business current accounts operate in a similar way to personal current accounts. Generally, you can withdraw or deposit cash and make payments using a debit card, whether you’re shopping online or in store. You can also accept incoming payments, transfer money to others, and set up standing orders or direct debits. Business savings account A business savings account lets you put aside spare cash and store it for a later date, while earning interest on it. There are different types of business savings account: Easy access: There are few or no restrictions on when you can deposit or withdraw money. Notice: You must give the bank notice before you want to withdraw money (you choose a notice period when you open the account). Fixed rate: You ‘lock away’ your money for a certain amount of time and get a fixed interest rate for the whole term. Which savings account you get depends on your specific circumstances. If you’re unsure, it’s worth talking to a financial adviser or asking your bank for more information. » MORE: Business savings accounts guide Online business accounts You can get a business bank account which can be managed largely or solely online. This includes accounts from challenger banks or digital-only providers, as well as traditional banks which have diversified their offering. If you like to manage your money on the go, via an app or through internet banking, this could be an option for you. If you prefer to bank in a branch, an online business account may not suit you. » MORE: How to open a business bank account online Free business bank accounts Some business bank accounts are described as ‘free’. This usually means that you don’t have to pay a monthly fee, but you may have to pay for other services and per transaction instead. Or, it could mean that there is an introductory offer where you don’t pay for everyday services for a period of time. You may be able to choose between a free or paid version of a business bank account, each with different features or a separate pricing structure. You could compare these to see which is more suitable for your business needs. You should check the terms of your business account to find out more about ‘free’ business banking and what fees a provider may charge. » MORE: Explore free business accounts Merchant account A merchant account manages incoming transactions made by debit or credit card. This can be set up with a payment processing service. With a merchant account, transactions are processed and any fees for using a card terminal or other processing system are deducted before you receive the money. If you sell goods and take payments online, by phone or in person using debit or credit cards, you may need a merchant account. Do I need a business bank account? Whether you are a sole trader, freelancer, a contractor, running a limited company or in a partnership, you’ll need to keep your finances organised. One way to make this easier is to open a separate bank account for your business. With a business account, you’ll keep work transactions separate from your personal money so it may be easier to do your accounting and tax returns. And by managing a business account, you will build a business credit score for your business, which will be useful in future if you need to take out a business loan or get a company credit card. Pros of using a business bank account You can build a credit score for your business. You will be able to keep your business finances separate from your personal finances. It looks more professional – some clients may want to send money to a business account rather than a personal account. Cons of using a business bank account It is another bank account to keep track of. There may be charges for actions that may be free with a personal account. Business account vs. personal account How might a business account differ from a personal current account? We look at the similarities and differences below, and consider the pros and cons of each. Similarities between business and personal accounts Business accounts and personal accounts have similar features, so you can use a business bank account as you would use a personal current account. This means you can use it for your day-to-day banking needs, such as making transfers, setting up direct debits, and paying for goods in store or online. Differences between business and personal accounts The difference between the two is that a business account is set up for your business – it shouldn’t be used for personal transactions. Likewise, you should not use your personal account for business-related activities, unless you are a sole trader. Mixing up the two means that it is more difficult to keep your business and personal finances separate, something you are required to do if you run a limited company. It can also be a good idea to keep these separate if you’re a sole trader, as it can help you organise your transactions when it comes to filling in your self-assessment tax return. Pros of using a personal account for business Ease: For sole traders, all your money is in one place. Familiarity: If you use the same account for both sole trader and personal transactions, you’re already used to how it works. Cons of using a personal account for business It’s often against the bank’s terms and conditions to use a personal account for business – your provider could close your account if you do. Limited companies cannot do this – your business is legally a separate entity to you, so you need a business account. Traditional business account vs. online business account Would you prefer to open a business bank account at a traditional bank with branches on high streets around the UK? Or would you be happy with an online-only account? There are advantages and disadvantages to each option. For example, some online business account providers offer useful extras, such as tools to help you categorise your transactions, keep track of staff expenses and put money aside for your tax bill. However, if you want to deposit cash or cheques, or negotiate an overdraft, you might find it easier at a high street bank. With so many options available, it’s important to take the time to decide what you need, use online research tools like our comparison service, and weigh up the pros and cons of the different accounts. Similarities between online and traditional business accounts You can use them for your day-to-day banking, including transfers, standing orders, direct debits and card payments. Traditional high street banks may also have internet and mobile banking, so you can manage your account online too. Differences between online and traditional business accounts Traditional high street banks have branches where you can go in to manage your account or ask for help, while online accounts offer support digitally or over the phone instead. Online business bank accounts may take less time to set up than traditional bank accounts, though this is not guaranteed – it depends on your provider and individual circumstances. Do I legally need a UK business bank account? Whether you legally need a business bank account depends on the structure of your business. » MORE: Do I need a business bank account? Self-employed If you’re self-employed, whether you need a business bank account depends on how your business is set up – i.e. whether you’re a sole trader or run a limited company. Read on for more detail on how this may affect you. Freelancer Similarly, freelancers may legally need a business bank account, depending on the structure of their business. See below for more information. Sole trader You do not need a separate business bank account if you are a sole trader. Your business is not legally separate from you, so a separate account isn’t a requirement. However, you might want to set one up to keep your work finances clearly separate from your own. This may help when it comes to completing your self-assessment tax return, as you won’t have to trawl through months of transactions to find which were business expenses. Limited company As a limited company, you do need a business bank account. This is because your company’s finances are legally separate from your own. Again, this should help you when it comes to paying your tax bills – it will be easier to work out what you owe when all your business income and outgoings are listed in a separate account. How to compare business bank accounts A good place to start when you’re comparing business bank accounts is to decide which features and services you need from the account. Next, compare the charges and fees for the accounts you’re interested in and decide what you’re prepared to pay. To find your ideal business account, you might want to learn more about the providers. For example, some people like to check the ethics and values of their bank – you can search for this on the bank’s website. And how important is customer service? You might want to read what existing customers have to say on review sites, such as Apple’s App Store, Google Play and Trustpilot. Not sure what you need? Take a look at the list below of common bank account features and services to help you create your own ‘need to have’ list of features which are essential for your business. And then list any other options which would be ‘nice to have’. You can then check our comparison table to find accounts that offer the features you need. Deposits and withdrawals Check whether you have to pay for deposits and withdrawals, whether you get a certain number free per month, or whether they are all included in one monthly price. You should also look at where you can deposit cash or cheques. Some business accounts may not accept cash or cheque deposits, while others let you deposit funds at the Post Office, at a PayPoint or at a branch. Fees Business bank accounts usually come at a cost. Some have introductory ‘fee-free’ offers, but business bank account providers may charge you for services at some point. They do this in two different ways – it’s up to you to decide what suits you best. Monthly or annual fee Some business bank accounts charge a monthly or annual fee. Some transactions and services are usually included for ‘free’ as part of the account, but you may have to pay extra for other features. If you’ll need to make lots of transactions, this way of paying for your account might be more cost-effective for you. Fee-per-transaction This type of business account is often promoted as ‘free’ or ‘no monthly fee’. But you’ll pay for the service through fees for certain transactions, such as transfers or cash withdrawals. If you don’t expect to use your account much – for example, if you won’t make many deposits or transfers – then this type of account could work out cheaper than paying a monthly fee. Bank transfers If you intend to make lots of transfers, it’s worth checking whether you have to pay for these individually or whether they’re included in one monthly fee. One option could be more cost-efficient than the other, depending on your circumstances. For example, if you have to pay 20p per transfer and you make 50 transfers per month, this would cost you £10 per month. If an account had a £5 monthly fee with all transfers included, this option could be more suitable for you. In particular, if you rely on international transfers you should make sure that the bank you choose allows you to do this, as not every provider does. Standing orders You can set up standing orders with a business current account. Standing orders let you pay another account a fixed amount on a specified date, at a frequency you choose. For example, you could set up a £100 payment to go out to your business savings account every month on the 25th. Direct debits Direct debits are also possible using a business current account. These may be used for paying your business energy bill, for example. You set up a direct debit agreement with the company, and it can then take a set amount of money out of your account on a pre-agreed schedule. » MORE: What’s the difference between a standing order and a direct debit? Debit card Business current accounts generally come with a debit card, allowing you to pay for goods or services, and take out cash from an ATM. You may be able to get multiple debit cards for your account. For example, if you want to give certain employees a card to pay for expenses, or if you want every manager to have a debit card. Availability depends on the provider, so it’s worth checking if this is something you’re interested in. Mobile app Providers may have an app that you can use for everyday banking tasks, such as checking your balance, making transfers and setting up standing orders. If digital access to your account is important to you, you should check if an app is available. How to choose the best business bank account You can choose from a range of accounts to fit your needs, including: joint accounts that offer access to you and your business partner(s) accounts that can be opened with no credit checks bank accounts designed for sole traders start up business accounts free business bank accounts With so many similar business account providers out there, it can be difficult to decide which type of account could be best for your business. Whittling down what you want your account to provide will help you to choose the best one for your business. You can start by using our table below to compare some of the different types of business bank accounts. With our comparison service and this simple guide to how to choose a business bank account, we’ll help you narrow down your options to make a more confident decision. How to open a business bank account What you need to do to open a business bank account will vary depending on the account provider. Along with personal ID, proof of your residential address, and proof of your business address, you may also be asked to show evidence of your annual turnover or estimated income, such as your previous tax return or your business plan. » MORE: How to open a business bank account in the UK Tips for getting the most out of your business bank account Business bank accounts can come with a host of features and perks. It’s worth looking into these so that you can make the most of what is available to you. For example, is there an introductory offer where you can get cheaper or even free banking for a period of time? Or perhaps a banking provider offers access to accounting software or business support to help you manage and grow your business. To make the most of your business account, you might consider comparing deals from different providers on a regular basis. If another bank has an account better suited to your needs, it could be worth switching. You can use the Current Account Switch Service to switch bank accounts if your old bank and new bank are signed up to the scheme, and the account meets the eligibility criteria. Switches made through this service are backed by the Current Account Switch Guarantee, so you’re protected if anything goes wrong during the switch. More information about eligibility, the switching process and the guarantee can be found on the scheme’s website. » MORE: Switch your business bank account Business bank account FAQs Do I need a business bank account? If you run a limited company, you are legally required to have a business bank account to separate your personal and business expenses. Sole traders don’t legally need one but may find it helpful when organising their finances. What’s the difference between a business bank account and a personal bank account? Business bank accounts share many features with personal current accounts. However, the main difference is that you need a business account if you run a limited company or if you’re a sole trader wanting to separate your business and personal finances.

Page 3 of 3 - Business Current Accounts

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