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What our Nerds say about business bank accounts for startups
You can use a start up business bank account for all the essentials you would expect when running a business, such as paying bills and checking statements. But you can also access time-saving tools and support for your business, such as integrated accounting and direct invoicing.
The main benefit of a business bank account is that you can separate your personal and business finances. This can make life easier when it comes to accounting and expenses, and is important if you run a limited company.
When choosing the best start up business bank account for you, you’ll want to consider the features and functionality on offer. Are you happy with app-based access, or do you want a branch to visit if you need to? Is there a free business banking period and business support to help grow your start up?
What is a start up business bank account?
It is a bank account specifically designed for a start up business, which is separate from your personal bank account. You can make deposits and withdrawals, buy goods or services using a debit card and, in some cases, access an overdraft, just like a personal current account. But business accounts usually charge fees and transaction costs, and they provide extra tools and services useful for businesses, such as business support and online accounting.
You can open a start up business account with a high street bank, or through online-only challenger banks and app-based platforms that offer business current accounts.
Does a start up need a business bank account?
Whether you need a business bank account depends on the type of business you have, though it can also depend on your personal preference for managing your finances.
If you are a freelancer, self-employed or a contractor, known as a sole trader, it is your choice whether you open and use a business account. Even so, you might want to have one, so your personal transactions are kept separate from your work payments. That way, you will be able to see business income and expenses, and monitor cash flow more easily. This will also help make life easier when it comes to completing your tax return.
Separating your personal and business affairs early on could also come in handy as your business grows. Added to that, your business will build up its own business credit score and, if you manage it well, may be in a better position for a business loan or business credit card in the future.
You may also be glad to have a business account if you hire an accountant or tax adviser to manage your finances, or if HMRC needs to make an inspection, as your personal transactions will be separate. And if you are billing customers, you may look more professional if payments are made to a company name, rather than your name.
If you decide to use a personal current account for business transactions instead, maybe because you only occasionally do freelance work, check the account terms and conditions. Some banks won’t let you use personal accounts for business purposes, and if your account shows lots of business-related transactions your services may be stopped and your account may be closed.
If your start up is a limited company or limited liability partnership (LLP), even if you are the only employee, you need to have a separate business account. Company income should only go into that account, and you can pay your expenses and salaries out of it.
Your company’s money has to be kept separate from your personal money, as it is a separate legal entity. A business bank account is an easy way to prove that separation.
How to choose a bank account as a start up business
You may like the idea of using the same provider for your personal and business accounts, to streamline your banking. This could be because you want speedy transfers between accounts, or you would like both accounts in one place.
But it makes sense to check you are not missing out on a better deal that could save money. By shopping around, you can compare the fees, extra features and charges providers are offering, and see how they stack up.
You might want to look for the lowest fees for the transactions your business is most likely to carry out. Introductory fee-free deals and other discounts are worthwhile features, but think about the whole package and what would be best value for your business, depending on the benefits offered and transaction charges once any introductory period expires and you move to a different plan.
You may also want to check feedback on review sites about the provider’s customer service and usability of its app, for example, along with ethical banking credentials, if that is important to you.
Useful start up business bank account features
As well as day-to-day transactions, such as deposits, withdrawals, transfers, standing orders and direct debits, start up business bank accounts offer extra benefits, admin tools and time-saving perks that personal accounts don’t provide. These features may be part of the package, or you may need to pay extra or select a specific plan.
Features on offer might include:
- a mobile app with 24/7 support
- integration with accounting software
- multi-user access
- invoicing, including tracking and reminders
- expenses management
- scheduled payments
- instant spend phone notifications
- fast customer payment systems
- introductory fee-free banking period
- overdraft facility, subject to approval
- business support
- virtual office address
- savings ‘pots’ to set aside income for tax
- spending reports and data
It is worth knowing that if there is an annual or monthly fee, it may include some services and transactions for free, which might be useful if you make lots of those types of transactions. If this fee is waived for an introductory period, find out what you are likely to pay once that period is over.
Can any business open a start up account?
You can apply for a start up business bank account if you are a sole trader, a registered limited company or a partner in a limited liability partnership (LLP) based in the UK. Start up business accounts are open to most sectors and business types, but some accounts will have trading or turnover limitations.
So, for example, the provider may ask that your business has been trading for less than a year, or that your turnover doesn’t exceed a specific amount. Some providers also exclude sectors they consider to be a higher risk.
If you are applying, you must be a sole trader, partner or company director aged 18 or over. If it is an app-only service, you will need a compatible device.
Limited companies must be registered with Companies House and based in the UK, and directors with access to the account must be UK residents.
How to apply for a start up business bank account
Depending on the provider, you can apply for a business bank account online or in person, at a branch. How you do this, and the information you need to provide, will vary depending on the account provider, but it is likely to include:
When you apply, you will need to have some specific documents and details to hand about you and anyone else who will have authorised access to the account. The provider will list what is needed, which will include proof of your identity and address through documents such as a driving licence and utility bill, and other personal information such as your date of birth.
You will need to provide details about your business, including its legal structure as sole trader, limited company, partnership or ‘other’. If applicable, you will also be asked to supply your company’s name and address, company number, date of incorporation, main business activity, the number of employees, and projected turnover in the next 12 months. You will also need to estimate the likely size and number of transfers in or out of the account.
Typical fees for business bank accounts
When choosing a business bank account, you will probably be looking for the best value when it comes to fees and charges. You may also want to consider add-ons that could offer start up business support and save you time with online accounting extras.
Many providers charge a monthly or annual account fee, though some waive this if your balance is maintained at a certain amount. Some offer no account fees and free banking, sometimes for an introductory period, though you may need to pay to use some features.
Keep an eye out for charges and fees for these services:
- Paying in cash and making withdrawals, such as through an ATM.
- Automated payments, such as Faster Payments and direct debits.
- Non-automated payments, such as cheques and manual processing.
- International transactions, where you send or receive payment in other currencies.
- Overdraft charges, or charges for exceeding monthly transaction limits.
Bank account fees and interest are tax deductible, so you can usually include them in your expenses, under ‘financial costs’.
Start Up Business Bank Accounts FAQs
To open a start up business account, you will need to show proof of your identity and address, and supply a few details about your business.
The level of information required depends on the provider and your business structure and type, but it might include:
- Proof of identity, such as your full driving licence or valid passport.
- Proof of address, such as a recent utility bill or bank statement.
- Contact details, including phone number and email address.
- Business trading name and contact details.
- Information about your main business activity and if you trade overseas.
- Projected turnover for the next 12 months.
- The number of employees and their employment status.
- Company registration number and tax identification number.
Some start up business bank accounts currently offer overdraft facilities, subject to approval.
A business overdraft lets you access funds up to a limit, even after the account balance falls to zero, but you will be charged interest on the amount of credit borrowed. You may also be charged business overdraft fees, including an arrangement fee or annual fee, or a penalty if you borrow more than your arranged limit.
To arrange an overdraft, you will need to meet the provider’s eligibility criteria, such as a minimum trading time, and a good credit history for your business and its directors.
Check the fees and terms carefully before you start using an overdraft and consider there may be cheaper ways to borrow money.
The time it takes for applications to be approved can depend on your circumstances. Some online-only providers may offer a decision within just 10 minutes, while for others it could take a number of weeks.
If there are any extra verification checks needed, or if there is an overall increase in applications at a particular time, this may affect how long it takes.
Some business accounts currently offer ‘free’ banking for start ups, and don’t charge a monthly or annual business banking fee. They may, however, charge you for carrying out certain transactions, such as transfers in and out. If your start up is unlikely to require many transactions, this could be a cost-effective option.
If, however, you are likely to make frequent transactions, it may work out as better value to pay a monthly or annual fee if you get some transactions at no extra cost. Other transactions and services such as international payments may still incur a charge, though.
Many business banking providers offer free banking deals to new customers, for an introductory period only. So bear in mind that monthly charges and fees per transaction may kick in once that period expires.
Yes, you can switch to another business bank account later, and it is probably easier than you think. Once you’ve chosen your new deal and a switch date, if it is a participating provider, the Current Account Switch Service (CASS) automatically transfers across your balance, standing orders and direct debits, before closing the old account.
The switch should be complete within just seven business days, but your provider will contact you if there are any delays. If you need an overdraft as part of your switch, this must be agreed and in place with your new provider before the switch.
CASS covers over 40 banks and building societies in the UK, but if your old or new provider is not participating in the scheme, ask your new bank how it can help you to switch. If it doesn’t offer a switching service, you may need to run your current business account alongside the new one until you are ready to make the change.
You will need to tell any clients about this change of bank details and update your invoice template, and change stored card details for recurring online payments, but the rest is taken care of.
The benefits of switching can outweigh staying with a provider if you are not happy with increased charges or the level of customer service – or you have seen a better deal that suits your growing business better.
Exactly what you need depends on the provider, but you usually need to show photocard ID as proof of your identity, and confirmation of your UK address. That might be your passport or driving licence and recent council tax or utility bill.
You must also confirm other details, including your legal name, nationality, recent addresses, and your contact information, including your phone number and email address. This applies to each owner, director or partner of the business. Your bank will carry out similar checks on anyone authorised to operate your account, or who owns or controls more than a certain percentage of business shares or voting rights.
When you apply, you need to supply the business name and address, the date it was started, company registration number if it is a limited company or partnership, along with details of any other business bank accounts you hold.
You may also need to provide some financial information about your business, including the main business activity, number of employees, sources of income and investment, expected turnover in the next 12 months and tax status.
You will also be asked how much money you expect to pay into the account in the next 12 months, and how frequent transactions will be.
It depends on the provider. Some banks will generally let you make or receive international payments in a number of currencies. You can do this online, over the phone, or you may need to go into a branch. You will need to give a reference code, such as a BIC, SWIFT or IBAN, which you should be able to find on your bank statement or by logging in to your online account.
Before you make the transfer, check the bank’s upfront transaction and commission fees, and the exchange rate it is charging.
If international transfers are likely to be regular, you may want to consider an account plan that offers free international payments. However, there will usually be a limit set and a foreign exchange charge may still apply.
If you are a start up, you can access government support if you need advice, want help with growing your business, or are worried about debt.
- There are small business grants available to help growing businesses, depending on your region and industry.
- New and growing businesses can apply for a government-backed start up loan of £500 to £25,000, with up to 12 months of free mentoring. (This is a personal loan.)
- The Recovery Loan Scheme is a government-backed scheme helping small businesses access finance to survive and grow, running until 30 June 2024.
- If your company works on innovative projects in science and technology that makes advances in the field, you may be eligible for research and development tax relief.
- You can call a national business support helpline to get free support and advice, and learn about possible sources of finance. There are separate helplines for businesses in England, Wales, Scotland and Northern Ireland.
- If your business took part in the Bounce Back Loan Scheme, your lender may have contacted you about Pay As You Grow. This offers extensions to loan terms, periods of reduced payment and repayment holidays, if needed.
If you are worried about business debt, the British Business Bank offers information about how to manage debt and where to get help in your region.
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