Do You Need a Business Bank Account to Operate?

Currently in the process of setting up your own business? Congrats! This is an exciting new chapter in your life, bursting with opportunities, excitement and probably a few nerves too. During your research, it’s likely you’ve asked yourself, ‘Do I need a business bank account?’ We’ve put together this handy guide that will answer just that.

Let us guide you as we explain whether a business account is essential, its benefits and how to go about choosing the right one for your business.

What is a business bank account?

A business bank account is a bank account designed for businesses; from sole traders to limited companies. It works in a similar way to your personal bank account, by allowing you to send and receive money, but also grants you access to other features exclusive to business owners. You’ll be able to carry out transactions in foreign currencies and process salary payments, making your life as a business owner that bit easier. Planning to take out a business loan later on? Opening a business bank account can also help you boost your business’ credit rating, improving your chances of acceptance and a competitive interest rate when it comes to borrowing. 

Who needs a business bank account?

So the question is, do you need a business account? Whether you legally require a business bank account or not will depend on whether your business is legally separate from you. 

Looking for more detail on business bank accounts? Read our article -  Do you need a business bank account? - for more insight. 

You need a business bank account

If you’ve set up, or are looking to form a limited company in the UK, you’ll need a business bank account. This is because a limited company is treated as a separate legal entity to you and other business owners, so you shouldn’t use your personal bank account for its finances. As a limited company, your business is considered an ‘individual’, so it’s important to keep your finances separate from your business’ finances. Want to read more about this? Read our guide on limited liability here.

You don’t need a business bank account

If you’re a sole trader, freelancer or contractor, you don’t need a business bank account. This is because you’re considered self-employed, so your business isn’t legally separate from you. But, if you’re looking to keep your business’ income separate from your personal finances, having a business bank account may make sense from a business perspective.

What are the benefits of a business account?

If you’re weighing up whether to open a business bank account, these advantages may win you over:

• Organisation: Having a business bank account can make you feel more organised and in control of your business’ finances.  When it comes to filing your tax return each year, your business transactions will all be in one place, rather than being mixed up with your personal spending. Having a business account makes it easy to keep track of your business’ cash flow and expenses so you can complete your tax return with ease.

• Professional image: Giving your customers or suppliers your business bank account details can help boost your business’ professional image, helping you to look established and trustworthy.

• Exclusive features: From processing salary payments to carrying out transactions in foreign currencies, a business bank account can offer you a range of features to support your business. 

Disadvantages of a business bank account

While setting up a business bank account can keep your business’ finances in order, there are some downsides to consider too. Here are some potential disadvantages to having a separate account for your business:

• Admin: With double the bank accounts, you’ll have twice the amount of admin to take care of. That means more cards, statements and paperwork to deal with. It may be worth keeping on top of admin regularly, rather than only when your tax return is due, to save you time later. If you’re a basic-rate taxpayer, it can be a good idea to put around 30% of your profit aside for tax and national insurance, and around 40% if you fall into the higher-rate band. 

• Fees: A personal account is completely free, whereas business accounts usually charge a monthly fee of around £5. It’s likely you’ll also be charged for withdrawing money and cash deposits. 

Using a personal bank account for business

So, do you have to have a business bank account? That ultimately depends on the type of business you have. If you’re a sole trader, you can continue to use your personal bank account for your business, but you may prefer to have a business bank account to keep your finances separate. Whereas, if you have a limited company, you aren’t able to use your personal bank account for your business. By forming your company with Companies House, your business is treated as a separate legal entity to you, so you must keep your personal and business’ finances separate. As mentioned previously, keeping your personal and professional transactions separate can often be beneficial anyway, making it easier for you to track your spending and keep on top of your finances. 

Choosing the right business bank account

Choosing the right business bank account is an important step in your journey as an entrepreneur. After all, it’s where your hard work will accumulate, so you’ll want to make the right choice. 

Some factors to consider when choosing a business bank account include:

• Fees: As mentioned, business accounts charge a fee, usually per month. While some banks advertise free introductory offers, make sure to research how much you’ll be paying long-term. Factor in how much your account will cost you and how you plan to use the account to figure out if the fee makes sense for your business. 

• Protection: Make sure to check that the money you deposit into your business account is protected under the Financial Services Compensation Scheme (FSCS). This means should the bank your account is with go bust, your money will be protected up to £85,000 per person, per financial institution. 

• Features: Your business bank account will come with various additional features, so make sure to keep an eye out for those that would benefit you most. Key features may include a mobile app to keep track of your money, being able to attach receipts to transactions and being able to categorise your spending. 

Take control of your business’ finances with Cashplus

Starting your own business is an adventure like no other, but not without its challenges. Keeping track of your budget and business spending can feel complicated. But with the right business bank account, you can gain clarity and control of your business’ money matters.

We’ve partnered with Cashplus Bank so you can tick another thing off your to-do list and know your business’ finances are all taken care of. Their business account is fully FSCS protected and FCA regulated - what’s more, you could apply and get a decision in minutes, with absolutely no monthly fee. When you form your company with SUAZ, we’ll submit your application to Cashplus Bank on your behalf as soon as your company is ready to go, with no additional paperwork. Talk about organised, right? Set up your small business bank account today.