Business bank accounts

Depending on the legal structure of your business, you may need to have a business bank account. If you have set up your business as a limited company or limited partnership, then you will have to have a separate business bank account, as these companies are seen as separate legal entities from you. You must keep your business’s financial records separate so you can keep accurate records and meet your responsibilities as a company director or member.

If you are a sole trader or in a general partnership, you are not required to have a business bank account, however, for some banks, using a personal account for business transactions could be against their terms and conditions, so you should check before you do.

Even if you are a sole trader, there are benefits to setting up a business account. These include:

• keeping your business and personal finances separate to simplify your accounting, help you manage cashflow and budgets, and help with tax returns and record keeping.

• accessing specialist banking services tailored to businesses, such as loans and overdrafts (if eligible), and accepting card payments.

• avoiding restrictions, with many business accounts having higher transaction limits (e.g. to enable salary payments), or allowing foreign currency transactions, etc.

• linking with accounting software, to help you manage cashflow, complete tax returns, and create invoices.

• projecting a professional image, with payments made to your business name, which can help your business appear more credible to customers and suppliers, and build trust.

Take time to compare different accounts across both traditional high street banks, and some of the newer challenger digital banks that provide app-based services with innovative functionality.

Before going any further, ensure that any bank you are considering has a full banking license and has Financial Services Compensation Scheme (FSCS) protection. This protects your deposits up to a value of £85,000 in the event of the bank getting into financial difficulty.

Also, have a look at the Independent service quality survey results for business current accounts, carried out at the request of the Competition and Markets Authority (CMA), to help you compare accounts.

To refine your shortlist, consider the day-to-day needs of your business.

Do you need to deposit cash?

If you take cash payments, you will require a business bank account that enables physical deposits, either through a branch or through the Post Office - although note you may be charged for making deposits and some banks have limits on the amount of cash you can process.

What online baking functionality will you need?

Most business bank accounts offer online banking to their customers, however some bank accounts offer more functionality than others or may be more user-friendly depending on your personal preferences.

Consider how important various elements of functionality are for your business:

• easy usability such as online set up of direct debits and standing orders

• different access levels for different staff through delegated authorities e.g. to enable payment approvals by key people

• strength and practicality of online security features

• virtual cards that exist in your phone and link to your chosen account like your physical card

• virtual accounts tied to your main account e.g. for smoother international ecommerce trading, so payments can be accepted in another country without having to use foreign wire transfers

• insights on spending and categorisation of spend to help with budget management, such as options to have several sub-accounts (or ‘pots’ of money) for different business purposes

• support with admin, such as reminders before payments are due

• integration with third party tools such as accounting software and card payment systems.

Do you need open banking?

Open banking is a government initiative which allows you to securely share your financial data, such as bank transactions, with trusted third-parties like accounting software or loan providers.

This can help you in many ways, including:

• improving your cashflow visibility by linking multiple accounts or budgeting software

• automating your accounting and invoices by linking to accounting software

• making loan applications easier by quickly sharing verified financial data.

Most business bank accounts support open banking, but it is worth checking before you commit. You can search account providers which support open banking in the Open Banking Directory.

What fees will you be charged?

Most business bank accounts charge fees, including:

• monthly fees for having the account

• fees for transactions and withdrawals

• international payment fees

• overdraft fees and rates

• the bank's interest rates.

Typically, digital business banks have lower fees than traditional banks, but don’t have branch access. Some small or ‘lite’ business bank accounts charge no fees for basic banking, with lower transaction limits or basic functionality.

When comparing the cost of accounts, remember to look beyond fees at things like deposit required, free banking periods, which transactions are included, and cash-handling limits.

Also look at extras, for example some bank accounts offer accounting software such as FreeAgent free of charge with an account.

What level of support do you need from your bank?

Customer service can vary with different bank accounts and the size of your business. Some banks with branches offer in-person services, others are online or on the phone. Some will provide you with a named relationship manager.

Banks can also offer guidance, support, and tools to help your business grow such as specialist business advice and mentoring - including online tutorials and modules, mentoring, growth programmes, and business networks.

For some banks, you can complete the set up process online. You, and all account signatories, will need to provide documents and details about you and your business. These include:

• photographic ID of all account signatories such as a passport or driving licence

• proof of address of all account signatories, such as bank statements or utility bills

• company registration details such as Companies House number and Memorandum and Articles of Association and Partnership Agreement if applicable.

• official company name and address, details of your activities, and your estimated annual turnover.

Security

You must keep your bank account secure and follow security instructions from your bank. Ensure that only appropriate people have access to the account, have debit or credit cards, and are authorised to make payments from the bank account. Use all security measures that your bank offers, including two-factor authorisation and biometric login.

Regularly monitor the account to identify any suspicious transactions, and ensure that you manage payment approval processes to prevent any fraud by employees, or minimise the risk of staff being successfully targeted by fraudsters e.g. requesting payment for fake invoices.

Monitor cashflow

Cashflow is the net balance of money moving in and out of your business over a given timeframe. A positive cash flow ensures you can pay your bills and keep your business going. Monitor the money coming into and going out of your business bank account and create cashflow forecasts and plan your spending. This includes setting money aside each month to pay your tax at the end of the year.

Review your needs

At least annually, review whether your business account still meets your needs. The terms and conditions, fees and limits, online functionality, or level of support might no longer work for your business as it grows.

You may want to negotiate changes to your existing account, consider switching to a different type of account, or changing bank entirely.

Ease of choosing and switching

Banks have a responsibility to their users to be transparent and enable switching between different banks.

The Competition and Markets Authority (CMA) requires banks to make it easier for small businesses to open and manage the right bank account for them. The aim is to:

• stop banks from “bundling” accounts with loans or savings, essentially making customers have a business account with them if they also have a savings account or loan

• give customers clearer information about fees and other costs

• create standardised account opening procedures to make it easier to open business accounts

• provide transparency on quality of service and allowing customers to compare banks by showing the Independent service quality survey results

• make it easier to switch providers from one bank to another to make sure that payments are redirected and the process is smoother.

For more information see the Competition and Markets Authority.

Protection against account closure

There are also new rules coming into force to better protect people and small business owners from being ‘debanked’ and having their account closed by their bank. The changes will prevent banks from closing accounts without a clear reason, while giving people and businesses the time and information needed to challenge decisions.

Banks (and other payment service providers) will be required to give at least 90 days’ notice before an account is closed. They will also need to provide a reason in writing, enabling customers to challenge the decision. For more information on these changes see HM Treasury.