Do I Need a Separate Business Bank Account?
Find out whether you need a separate business bank account as a sole trader or limited company, the benefits, and what to consider when choosing one.
Sole traders aren’t legally required to have a separate business bank account, but they must check whether their bank allows them to use a personal account for business. Limited companies must keep company finances and banking separate from their directors’ personal finances.
This guide explains the rules, the benefits of a separate account and what to check before you apply.
Self-employed bank accounts: do I need a separate business bank account?
If you are a sole trader, you and your business are the same legal person. You do not legally need a separate business bank account, but your bank may prohibit business transactions on a personal account. Check its terms before using one. A separate account makes it easier to track business income and expenses, and set aside money for tax.
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Bank accounts for limited companies
A limited company is a separate legal entity. GOV.UK guidance says you must keep company finances, including banking, separate from the personal finances of owners and directors. Opening a business bank account in the company’s name is the simplest way to do this. Check with your bank which account type you can use for company transactions.
Use the company account for its income and payments. If a director or employee pays a company expense personally, keep the receipt and record both the cost and the amount the company owes them. The expense claim guidance below explains how to reimburse it without recording the cost twice.
Compare fees, transaction limits, banking services and eligibility before choosing an account. Do not assume a business account pays interest or offers better borrowing rates than other accounts.
Business bank account benefits
A separate business bank account offers these 10 practical benefits:
- Keeping track of finances – See business transactions in one place. Check upcoming bills, tax payments and pending transactions before deciding how much of the balance you can spend.
- Accounting software – A compatible bank feed can import transactions into accounting software such as Xero, QuickBooks or Sage. Check which banks and account types the software supports, then review and categorise the imported entries.
- Recording expenses – A separate account makes business spending easier to identify, but you must still record each cost and keep receipts or invoices. Check which self-employed allowable expenses you can claim, including qualifying costs paid personally.
- Bank charges – Some accounts offer introductory fee-free banking, while others have no monthly account fee. Check transaction charges too. Sole traders can normally deduct qualifying business bank charges when claiming actual expenses, but must exclude personal costs. The account’s label alone does not decide whether a charge qualifies.
- Clearer records for HMRC – Keeping business transactions together makes it easier to explain your records if HMRC carries out a compliance check. Keep supporting receipts and invoices as well as bank statements.
- Lower bookkeeping costs – Clear records can reduce the time a bookkeeper or accountant spends separating business transactions from personal spending. This may help reduce your bookkeeping bill.
- Access to business finance – A business account can help demonstrate trading activity when you apply for finance. Approval depends on the lender’s checks, your financial position and the product’s eligibility requirements; opening an account does not guarantee borrowing.
- A professional payment process – An account in your business or company name can help customers identify the correct payee and suppliers recognise your payments. Check how your bank displays your account name.
- Meeting bank terms – Personal account terms may prohibit business use. Choose an account that permits the transactions you need.
- Accepting card payments – Check which settlement accounts your card payment provider accepts. Requirements vary by provider and business structure.
What should I consider when choosing a business bank account?
Compare accounts against the way your business handles money. Your existing personal bank may be convenient, but another provider may offer more suitable fees or features.
MoneySavingExpert offers business bank account comparisons. Check the provider’s own terms, eligibility rules and full charges before applying, including what you will pay after any introductory offer ends.
Consider the following points when comparing accounts:
- Business adviser – Check whether the bank offers business support or a relationship manager and whether you meet its eligibility requirements.
- Overdraft – If you need short-term borrowing, check whether the account offers an arranged overdraft. The bank will assess eligibility and affordability before approving a limit. Compare interest, fees and repayment terms.
- Banking fees – Compare monthly fees and charges for transfers, cash deposits, cheques and overseas payments.
- Accounting software – Some accounts include software. Eligible NatWest and Royal Bank of Scotland business current account customers can use FreeAgent without a separate subscription while they retain the qualifying account. Optional add-ons may cost extra.
- Business resources – Check whether the bank offers useful workshops, webinars or discounts on business services.
- Online banking – Check whether the app and website support the tasks you need, including payments, statements and access for other authorised users.
- Start-up offers – Compare introductory discounts or cashback with the account’s ongoing costs and conditions.
- Customer service – Check support hours, contact options and recent customer feedback. Consider branch access if you need to pay in cash or cheques.
How to open a business bank account
Many providers let you apply through their website or app. Some also accept branch applications. Check the options for your chosen account before you start.
The bank will check your identity and ask about your business. It may request photo ID, proof of address, details of the owners or directors, expected turnover and company registration details where relevant. Sole traders do not have a Companies House registration number.
Many banks verify identity digitally, although some applications require extra documents or a branch visit. Once the bank approves and opens your account, it will provide your account number and sort code.
Check the provider’s document list and eligibility requirements before applying.
10 tips for managing your business bank account
1. Have a separate bank account for your business
Use the account for business income and payments. Keep personal spending separate and label any money you introduce or withdraw clearly.
2. Keep accurate records of your income and expenses
Keep invoices, receipts and a record of each business transaction. Compare your records with your bank statement regularly using a bank reconciliation.
3. Use accounting software with a bank feed
A compatible bank feed can save time by importing transactions. Check for missing or duplicate entries, categorise payments and match them to invoices or receipts.
4. Monitor cash flow
Review upcoming receipts, bills and tax payments so you can spot a shortfall early. Use our cash flow forecast template to plan ahead.
5. Have a budget
Set a realistic budget and compare it with actual income and expenses. Our business budget template can help you track the differences.
6. Have an emergency fund
Set aside a cash reserve where possible to help cover unexpected costs or a temporary fall in income.
7. Pay suppliers on time
Pay suppliers by their agreed due dates to maintain good relationships and avoid late payment charges.
8. Use a debit card for business transactions
Use a dedicated business debit card to identify purchases easily. Keep the receipts and check card payments against your records each month.
9. Plan regular payments
Use Direct Debits or standing orders for suitable recurring bills. Check the available payment methods for each bill or tax, keep enough money in the account and review payments regularly.
10. Use your banking app
Use your banking app to check balances, review payments and set useful alerts. Protect access with the security features your bank provides.
Business bank account FAQs
Separate business bank accounts: summary
Sole traders do not legally need a separate business bank account, but must follow their bank’s terms. A dedicated account can make bookkeeping easier and help you keep track of tax and bills.
Limited companies must keep company finances and banking separate from directors’ personal finances. Use a suitable company account and keep clear records of any business costs a director or employee pays personally.
Compare ongoing charges and useful features before applying. Review your records regularly, even if you use a bank feed.
For further details about a separate business bank account, read about business banking.
