BasicsSavings&Banking

How to Choose The Best Business Bank Account (UK)

Having a business bank account is good for basically any commercial purposes, even freelancers and one-man firms.

While you are not required by law to have a business account if you operate a company in the UK, business bank accounts are usually a good idea.

They can be used to:

  • Consolidate business funds
  • Keep personal and business expenditures separate
  • Make your small business seem more professional.

But as you know, not all business bank accounts are made equal.

Today, we are going to talk about business bank accounts, how they differ from personal bank accounts, what benefits they have, and how to choose the best bank account.

What Is a Business Bank Account?

A business bank account is a checking account designed specifically for business activity.

Like a regular bank account, business accounts have a liquid balance that can be added to for payments or withdrawn from for expenses.

Business accounts can be owned by a single person or by a network of people involved in a business.

Differences Between a Business Account and Personal Account

Business accounts and personal accounts have a similar structure but there are some differences.

Generally, owners must submit extra information when opening a business account such as business registration and an employee identification number.

Business accounts are listed under the business name, not just the name of the owner.

Also, some banks may require business account holders to maintain a minimum balance. Some personal accounts also require a minimum balance, but this is a more common feature of business accounts.

Business accounts usually have higher service and maintenance fees than personal bank accounts. In contrast, most personal accounts are free to use.

Business accounts can be owned by a single person or by a network of people involved in a business.

Business Account Costs

Banks normally charge business fees for banking activity. The exact charges differ from bank to bank which is why finding a business bank account with good terms is so important. The best business bank accounts minimize incurred charges.

Here are some common account activities that banks charge for:

  • Making electronic payments
  • Making withdrawals
  • Receiving and making card payments
  • Depositing checks
  • Business-to-business transactions
  • Cash exchange
  • International transactions and activities

Most business bank accounts also charge a monthly maintenance fee. In some cases, business bank accounts will not have any extra charges associated with them.

These are normally for smaller startups that are just getting off the ground.

Why Open a Business Bank Account?

Whether or not you are legally obligated to open a business account for your company depends on your specific business structure.

If you have a limited company, then you are legally obligated to open a business account as the business is a distinct legal entity from the owner.

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Keep in mind that a limited company can consist of just one person; the business just has a different legal identity.

If you are a sole trader, you are not legally obligated to have a business account. You can use your personal bank account for both personal and business transactions.

Even though not legally required, opening a business account as a sole trader can be a good idea and has some notable benefits.

Pros of Opening a Business Bank Account

Keep business finances separate

One of the main reasons to open a business bank account is to separate your business expenses from your personal expenses. If you just made payments from the same account, then it might be tough, come tax time.

You must report how much your business has made to HMRC.

You are allowed to take out certain business expenses to lower your tax burden, but if you make personal and business payments from the same account, it can be hard to make the right calculations.

Having a separate business account makes it easier to track expenses and account for finances.

Look professional

Customers and clients will feel much more comfortable writing a check or making a payment to a company instead of a person.

Some clients might flat-out refuse to make payments to non-business accounts.

A business bank account lends your business an air of credence and promotes your image.

Individual account terms

Depending on your specific bank’s terms and rules of use, you may not be allowed to use a personal account for business activity.

Your account could be closed if your bank notices you are using a personal account for business expenses, especially if you are making a lot of large financial transactions.

Other features

Very often, business accounts might come with special features as a means to entice entrepreneurs to start companies. Some banks might offer free periods as a means to encourage small business activity, or they may offer in-credit interest on any current balance.

Since banks have an interest in business account owners succeeding, they may offer mentorship services where experienced investors and financial experts help new business owners navigate corporate territory. Some banks may even offer workshops for business owners to learn more skills.

A business bank account lends your business an air of credence and promotes your image.

Choosing the Best Business Bank Account

The first thing you need to do is figure out what your business needs.

Do you make a lot of daily transactions or payments?

Then you probably need to look for an account with low or no transaction fees. Finding an account with low fees can save hundreds to thousands of pounds every year.

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Do you typically keep a high balance on your account?

Then it might be a good idea to look for an account with in-credit interest.

In-credit interest is rather low on most business accounts though, so it might be a good idea to look for an account that compensates high balances in another way.

Alternatively, if your business incurs a smaller amount of large payments, then it might be a good idea to look for a business account that has no deposit limits or fees.

Keep in mind that accounts usually count transfers from third-party apps like Paypal and Stripe as normal deposits.

Whatever you decide, your business bank account should let you deposit cash and checks in-bank and should let you make cash withdrawals from ATMs and cashier’s check if you need them.

The general strategy is to find an optimal ratio of benefits-to-expenses that helps your business grow.

Also, make sure that any bank you open an account with is covered by the Financial Services Compensation Scheme (FSCS).

The FSCS will insure deposits in accounts in the event that your bank becomes insolvent. That way you will be protected from any losses.

There is also the option of online banking for business accounts.

Most physical banks nowadays have an online component but there are more solely-online focused banks too. Online banking usually has lower fees and better interest rates as it cuts out a lot of the costs banks incur from processing transactions.

Online banking is convenient, has very lower transfer fees if any at all, and is just as secure as regular banking.

Make sure that any bank you open an account with is covered by the Financial Services Compensation Scheme (FSCS).

How to Open a Business Banking Account

The exact steps to open a business bank account differ depending on the bank.

In general, you cannot open a business bank account online and you will have to go to an in-person meeting with the bank.

You will likely have to present proof of ID, proof of address, contact details, company house registration number (if you have one), and credit history.

Once you go to the meeting, your application will be processed and a decision will be made. If you are approved, you can use your bank on a day-to-day basis.

Final Thoughts

You don’t have to big a big company to benefit from a business bank account. Business accounts can help you keep expenses organized, allow easier tax calculation, and provide an air of legitimacy to your firm.

Opening a business bank account is the perfect way to advance your business to the next level.

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Tom
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Fully qualified CISI Investment adviser for 5 year. Managed UK private client portfolios.
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