Do I need a business bank account?

As a business owner, you may think you need a business bank account. But do you?

Several online sources state incorrectly that limited companies and limited liability partnerships need a business account by law. In fact, there is no such requirement in the Companies Act.

However, it is strongly advisable because limited company structures are separate legal entities from you, so you need to keep their finances separate. Without a business account, it would also be difficult to meet the detailed financial record keeping requirements on limited companies.

For sole traders, HMRC treats business and personal income as one, so using a personal account for business transactions may be more acceptable. Joint personal accounts for sole trader partnerships could also be acceptable.

But there are many other reasons why any company might need or prefer a business account.

Why I need a business bank account

It is difficult to take card and other types of payments from customers without a business account. The terms of personal accounts often state they are for personal use only. If you only receive a few payments, say for some side gig work, your bank may not notice or enforce that condition. But if you handle many business transactions, it probably will.

It is also difficult to apply for a corporate loan or overdraft without a business account as having one allows your bank to see your company’s financial performance and credit history more easily. If you plan to take a loan later, opening a business account now will help you build a history.

Having a business account makes bookkeeping much easier and allows other parties such as HMRC, or prospective acquirers, to view your finances more easily. It also makes your company look more professional with clients and suppliers when sending out invoices and payments.

The difference between business and personal accounts

Business and personal accounts both offer transactional services, including cash, cheque, and card services; online payments; and direct debits. Both allow you to view and download statements online.

Historically, the biggest difference between the two was that you usually paid fees for business accounts but not personal ones. With some challenger banks offering fee free business accounts, and some personal accounts levying standard charges, this distinction is blurring.

But, on average, business accounts still charge more - typically from £5 a month plus fees for services such transfers and paying in cheques.

One disadvantage of a separate business account is that it takes time to set up and maintain alongside your personal account. Banks have to ask for extra information for business accounts as part of anti-financial crime laws and regulations, which means they can take longer to open.

But most companies find the benefits worth it. Many business accounts now offer features such as built-in bookkeeping solutions, for a charge; and or integration with accounting packages.

Some also provide performance dashboards; business savings accounts; multiple current accounts for one business; or linked accounts in different currencies. App-based business accounts also have handy tools such as photo snapping of receipts and bills.

Finally, for those who still like the human touch, many banks also employ dedicated and specialist staff to support business customers.

Compare business accounts

Before opening a business bank account, it’s a good idea to check you’re getting exactly what you need. You can use us to compare business accounts by monthly account fees, the duration of any free banking offers, overdraft availability, and more.