How to open a business bank account

What should you look for in the best business accounts? Can you open a business bank account with bad credit history? Find out in our expert guide.

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Business bank accounts are necessary for keeping business transactions and accounting records organised, processing employee salaries, and receiving credit and debit card payments.

They are also essential for lending and support. In the face of challenges like the pandemic and Brexit, UK SMEs are relying on government support programmes, many of which require applicants to have a business bank account.

In fact, according to pay.uk's COVID-19 impact report, the proportion of SMEs using business current accounts increased by 5% in 2021 as a result of this demand.

Still, not all business bank accounts are created equal. The rates and features available to you can have a big impact on your business's bottom line. It's important to do thorough research and find the best deal for your firm.

So how do you get started? How do business bank accounts differ? Can you open one with a poor personal credit history? We'll answer all of these questions and more in the below guide.

Short on time? To make things even easier, we've also designed a Startups' exclusive quote comparison form. You can use it to compare costs and benefits from the top bank account providers based on your unique business needs.

What is a business bank account?

A business bank account ensures your business finances are separate from your personal finances. It comes with a range of business-tailored benefits, and allows you to keep track of:

  • Your balance
  • Money owed to the business
  • Outgoing payments
  • Payroll

As a limited company, you are legally required to have a business bank account, as your business is a separate legal entity and the money it generates must be handled separately.

This means any transactions, debts, and taxes will be in the business’s name instead of yours.

Banks impose strict terms on how you can withdraw money from your limited company. You can either:

  • Take a salary
  • Take dividends
  • Claim back expense you’ve personally paid

A business bank account will enable you to set up a method that works for you, and ensures you stay on the right side of the law.

What about if you’re a sole trader?

As a sole trader, you don’t have to open a business bank account. Nevertheless, having one makes it easier to claim business expenses, and ensures you’re not personally responsible for business taxes.

Mike Parkes, technical director of GoSimpleTax, makes the case for opening a business bank account as a sole trader: “You can keep cleaner records. Some business bank accounts even categorise your expenses, to make the record keeping – and submitting your self-assessments – easier.

“If HMRC investigates a tax return, they can ask to see any bank account used for the business. Why give them personal information unnecessarily? They can always ask to see personal accounts, but do need a good reason for this. So it's much easier (in my opinion) to have a separate bank account for your business.”

What can business banking do for my business?

A business bank account makes it easier to manage and monitor every aspect of your business finances, with services that are specially designed for companies rather than individuals.

This includes helping you organise your financial records, filing accurate self-employment tax returns, and keeping track of incomings and outgoings.

It’s also possible to access advice and support through your business bank account. This could be in the form of online advice, or even a personal adviser.

Many banks offer flexible loans to their business customers to fund long or short-term growth ambitions. However, you won’t always be eligible for a loan. You’ll need to show what the finance will be used for, and prove that you’re capable of paying it back.

Choosing a business bank account

VAT tax finance laptop

There are a number of factors you should consider when choosing a business bank account.

  • How competitive are its fees?
  • Does it offer useful features for small businesses?
  • How is its customer service?
  • Does it offer an appropriate tariff for the size of your business?

Be aware that some banks may not charge monthly fees, but might have less obvious transfer charges which end up costing you more than expected. Others offer a period of free banking.

Parkes says that while certain bank accounts offer tailored services for particular industries, you should at least make sure the provider you choose offers the following:

  • A mobile app for making payments on the go
  • Free or low-cost monthly account fees
  • Low transaction fees
  • Overdraft facility
  • Free cash withdrawals

In the end, you’re often comparing like with like when it comes to business bank accounts. There’s little variation in features between different providers, and the myriad ways fees and charges can be split and arranged can make it difficult to establish which provider offers the best rates.

Therefore, consider how different fees or transfer charges affect your business. Or, if you plan to use your bank overdraft as a form of finance, choose a bank with comparatively low overdraft fees.

It would be near impossible to provide the rates and fees of every business bank in the UK, but the table below gives an idea of what you can expect to pay for a business bank account.

Remember, many of the top business bank providers have hidden fees, such as charging extra for multiple cards. Our online comparison tool is also a good way to get direct quotes based on the specific provider plan your business will require.

0 out of 0
Best For
Monthly/Annual Fees
Key Features

Tide

Cashplus

Revolut

Starling Bank

Soldo

Mettle

Countingup

CardOneMoney

Best overall

Freelancers with steady work

International payments

A quick and easy set up

Business expense management

A free account

Businesses at all stages of development

Those with a poor credit rating

  • Free replacement card scheme
  • App-based for on-the-go mobile banking
  • Integrates with accounting software
  • Create invoices for billing clients
  • Minimal background checks
  • Easy overdraft extension with iDraft
  • 24/7 phone support available
  • Exchange 29 currencies, spend in over 150
  • Exclusive discounts and perks from partners
  • Support team available to help 24/7
  • Deposits protected by the Financial Services Compensation Scheme (FSCS)
  • Almost no fees
  • Super quick set up time
  • Central hub for all employee card payments and company purchases
  • Unlimited bank card allowances
  • Useful tracking features for spending reviews
  • 100% free (for now)
  • Setup an online account in minutes
  • Backed by NatWest Group
  • Free trial
  • Calculate taxes through the app
  • No monthly charges for first three months
  • No credit card checks
  • UK-based call centre for customer support

Are digital challenger banks a good option?

Digital challenger banks are fintech companies that ‘challenge' the big four UK banks: Natwest Group, Barclays, Lloyds TSB, and HSBC.

Popular brands include Monzo, Tide, and Starling. Such stiff competition has made the business bank account space much more diverse. Their features usually offer a degree of transparency and control that wasn't previously available.

This includes instant spend notifications to your phone, integration with your accounting software, and the ability to instantly freeze your card if it’s misplaced or stolen, then unfreeze it if it’s recovered.

However, you might feel more comfortable trusting your business finances to a more established provider. And you won’t have the benefit of a face-to-face relationship with a digital challenger bank, since there are no high street branches you can visit.

Using websites like Trustpilot, you should also look at online reviews of the business banking providers you’re interested in.

Andrew Garvey, CCO at Countingup, makes a compelling case for why startups should consider a fintech banking service:

“As an alternative to opening a business account with a traditional high street bank, startups should consider opening an account with a fintech bank. To start with, opening an account can be a faster, more streamlined process. And there’s no need to make an appointment with an account manager and go in branch – an account can be opened straight from your mobile phone.”

Business banking features

We’ve touched on features while discussing the benefits of using a business bank, and what factors should influence your choice of provider. But this section will take a closer look at some other business banking features.

Business banking features are similar to personal account features, but tailored to the needs of a business.

Personal adviser

Having a financial specialist to help you navigate the many financial products on offer is a great benefit of a business bank.

These specialists can advise what type of loan facility is most appropriate for your business needs, and help you plan how to use your borrowed finance effectively.

Payroll services

Paying employees can be complicated, with national insurance and tax to be deducted, payslips to be created, and reporting to be conducted.

A business bank account can help reduce the complexity of setting up salary payments, and ensure you stay on the right side of government regulation.

Your bank can complete records and HMRC filings on your behalf, automatically take care of statutory payments such as sick pay, maternity pay, and student loans, and even produce payslips.

Protection and business insurance

Business can be risky. Your business bank can help you with insuring your business with tailored insurance policies from its partners.

International trading services

If your business trades overseas, you can open a specialist account that provides essential support for imports and exports. That gives you the most favourable terms on international payments in a currency of your choosing.

Your bank can also provide letters of credit for importing and exporting, which transfer payment risk from the business to the bank.

Opening a business bank account

Barclays bank

To open a business bank account in the UK, you will need the following information about your business:

  • Full business address – including postcode (this can be your home address)
  • Contact details – including landline and mobile phone numbers, plus email address
  • Companies house registration number – if you’re a limited company or partnerships (this will be displayed on your certificate of incorporation)
  • Approximate annual turnover
There’s no need to make an appointment with an account manager and go in branch – a challenger bank account can be opened straight from your mobile phone.

You’ll also need the following information about any partners or directors:

  • Full names and dates of birth
  • Proof of identity – such as a driving licence, passport, or national ID
  • Proof of personal address – you’ll also need your previous address if you’ve been at your current one for less than three years
  • Account number – if setting up a business account with a bank you already have a current account with

How to open a business bank account with bad credit history

You will be subjected to a personal credit check when opening a business bank account. But what if you have a bad personal credit history?

Whether you’ve had previous failed businesses, defaulted on loans, or received county court orders, many people in the UK have a less than desirable personal credit history. But don’t despair – it is possible to open a business account with poor credit history.

You should make sure that:

You have a solid business plan

This should be true regardless of your credit history. A thorough business plan – which details your financials and projected forecasts, proves that you have a viable idea, and displays plenty of potential – will show any decision makers that you’re a credible customer.

You check your credit history yourself

Don’t wait for any issues to be pointed out to you. You can get hold of your credit report for free with certain providers, and check it is all in order. Make sure all details are correct, and see if there are any outstanding balances that can be cleared up, such as bills, credit cards, or other balances.

You’re on the electoral register and registered with HMRC

It can be extremely difficult to open a business bank account if you don't get listed on the electoral roll. Furthermore, you must register with HMRC within three months of the start of trading.

Business banking switch

Banks often introduce new monthly fees or additional charges that can reduce your plan's value for money. Because of this, it’s a good idea to regularly compare provider quotes with our online comparison tool, to make sure you're getting the best deal.

Since banks are always keen for new customers to sign up, it isn't difficult to switch business bank accounts when you find a better quote. Plus, we've designed our tool to take just one minute to complete, so it's quick and easy to check what else is out there.

According to Parkes, the experience should be painless and take around seven days. But bear in mind that “before closing your old account, you would need to repay any overdraft balance– so it's worth accounting how long this may take when preparing to switch bank accounts.

“That being said, customers may also need advising, and updating their records might have a temporary impact on cash flow until they all update. This may lengthen the process a little. Nevertheless, it should be generally easy and straightforward. Banks like to make transitioning to them as easy as possible.”

Next steps

To recap, you are legally obliged to open a business bank account if your business is a limited company. But even if you’re a sole trader, opening a business bank account can make it a lot easier to manage your finances.

Assess your business banking options by weighing up the features on offer, as well as the various charges and fees you’ll be subjected to.

Alternatively, you can let us do the hard work for you. If you’re ready to start comparing business bank accounts, take a look at the banks we've included in this page, or check out our breakdown of the best business bank accounts.

Compare Business Bank Account Costs Do you have a business bank account already?
Frequently Asked Questions
  • What is a digital challenger bank?
    Digital challenger banks are fintech companies that 'challenge' the big four UK banks: Natwest Group, Barclays, Lloyds TSB, and HSBC. They are usually app-based, so they have no physical branch. However, they are much more innovative in terms of transparency and managing your expenses, so they are popular with small business owners.
  • Do I need a business bank account if I am self-employed?
    You are not legally required to open a business bank account if you are self-employed. However, having one can make keeping accounting records and financial data much easier. It also looks much more professional when billing clients.
  • Is a business bank account worth it?
    Even if you're not a limited company, and therefore legally required to have one, we highly recommend opening a business bank account. They make managing expenses and income much easier, and will help you to meet tax and reporting obligations. They are also important for accessing government support schemes - unavoidable for many SMEs in today's economic climate.

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Helena Young
Helena Young Senior Writer

Helena "Len" Young is from Yorkshire and joined Startups in 2021 from a background in B2B communications. She has also previously written for a popular fintech startup.

Included in her topics of interest and expertise are tax legislation, the levelling up agenda, and organisational software including CRM and project management systems. As well as this, she is a big fan of the films of Peter Jackson.

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