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How to open a business bank account

What should you look for in the best business accounts? And how do you open a business bank account with bad credit history? Find out below...

You already have a personal bank account, so why do you need another for your business?

What can a business bank account do that a regular bank account can’t? And how do you open one if you have poor personal credit history?

Startups.co.uk is here to answer these questions and help you understand what you should be looking for when choosing a good business bank account.

This article will cover:

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 obliged 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

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.

Bank Monthly fee Electronic transfer fee
Revolut £6.99 Free
HSBC £5.50 23p
Barclays £6.50 35p
Lloyds £6.50 35p
Santander £7.50 Free
TSB £5.00 minimum 0-20p
NatWest Free 35p
Metro Bank £5.00 (free if balance remains +£5,000) 30p (or 50 free if balance remains +£5,000)
Royal bank of Scotland Free 35p
Bank of Scotland £6.50 Free

(All information is correct at time of writing – June 2019)

You can find a full breakdown of the best challenger bank for business accounts here.

What about mobile-only/mobile-first banks?

Digital challenger banks – such as Monzo, Tide, and Starling – have made the business bank account space a lot more varied than it once was, with features that offer a degree of transparency and control not 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. No more cancelling a card that you subsequently find 10 minutes later in your other jacket.

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 your digital bank, since there are no high street branches you can visit.

That being said, 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.”

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

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.

A 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

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

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

What’s next?

It’s not always necessary to go in-branch to open a business bank account. Many providers now offer an online application service – provided you have all the required information and documents.

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.

Download Startups.co.uk’s business plan template here.

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’re not listed on the electoral roll. Furthermore, you must register with HMRC within three months of the start of trading. Register here.

Find out everything you need to know about how to build business credit when your personal credit rating is poor here.

Business banking switch

To ensure you’re getting a competitive offering, it’s a good idea to reassess your business banking arrangements every so often.

Since banks are always keen for new customers to sign up, it shouldn’t be too hard to switch business bank accounts.

According to Parkes, the experience should be fairly painless, and only take around seven days. But there are a few things you should bear in mind:

“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, simply fill in the form at the top of this page to receive quotes from the best options for your company.

Or check out our breakdown of the best business bank accounts here.