How could a business bank account help you?

In this guide, we’ll talk about what a business bank account is and how it works. We’ll also look at when you legally need to have one and the reasons why it could help you and your business.

Business bank accounts: the basics

A business bank account, also known as a business current account, acts much like a personal current account. You’ll be able to carry out your day-to-day business banking, meaning you can:

• Make purchases with a debit card linked to the account

• Set up direct debits and standing orders to pay bills

• Receive payments from customers and clients 

• Typically access a business banking app and online service 

• Withdraw cash

• Deposit cash

• Make electronic payments

• Cash cheques 

Benefits of a business bank account

Managing personal finances can be complicated enough. Managing business finances through the same personal account makes things even more complex.

The most attractive feature of a business bank account is that it helps separate your business finances from your personal finances. This can help avoid any confusion when you’re going through statements, managing direct debits and tracking expenses.

Another benefit is it might help when it comes to completing your tax return. Having an account that’s entirely for business purposes means you can quickly go through and identify what cash came in and what cash went out. You can also find expenses that were made specifically for your business. Having quick and easy access to this information can help make tax returns simpler. 

Taking out a business bank account can start to build up your business’s credit history too. For example if you’re looking for an overdraft facility for your business, then you might be able to get one with a business bank account.

As with a personal overdraft facility, you’ll need to apply for it and pass relevant credit checks to be approved. You’ll also need to be eligible for it too. But if you do get an overdraft with the account and use it according to the terms, it can help build up your business’s credit history and score. This might then make obtaining things like business loans and credit cards easier.

Business bank accounts and the law

The legal requirement to have a business bank account depends on how you define your business. 

If you’re a sole trader or if you’re self-employed, you don’t need to have one legally. You won’t encounter any legal issues if you decide to manage your business finances through your personal account. You might have to pay a fine if you file an incorrect tax return though. That might happen if you confuse personal transactions with business transactions. 

If you’re a limited company then you’re legally obliged to have a business bank account. That’s because a limited company is a separate legal entity, and so its finances must be kept separate from any personal finances.

Different types of business bank accounts

While most business bank accounts allow you to carry out basic day-to-day banking, some may provide extras.

Typical additional features include the ability to earn extra interest on your balance. This can be useful if you’re often in the green. Many accounts may offer the option of an overdraft - subject to checks - but the rates typically differ between accounts. 

Some accounts may require your business to make a certain amount of profit to be eligible to have the account. A bank offering this type of account may ask to see your turnover during the application process.

Other types of accounts that offer more generous interest rates or transfer options may charge a fee. It’s worth looking out for that and weighing up the fee against the benefits of the account. The fee may be charged monthly, annually or by transaction and fees may not kick in immediately.

If your business regularly makes payments internationally, then it’s a good idea to ask the bank if this is supported before applying for the account. 

Accounting software can be a helpful tool for businesses and some banks may offer this with an account. This type of software can help with tax returns as it tracks spending and and manages expenses. Some accounting software even allows you to separate payments into pots you can track. 

It’s worth looking around at what accounts are available. That way you can find one that comes with features that are right for your business.

Opening a business bank account

The process of opening a business bank account should be straightforward. 

You can usually do it online or in branch. Either way it’s helpful to have all the information to hand to save you needing to reapply. Usually, the bank needs to see proof of ID. A passport or driving licence is usually fine. If your business has several directors, then you’ll all need to show proof of ID. Be prepared to provide contact details too. 

You’ll also need to provide proof of your address - such as a utility bill or a bank statement. In addition to your personal address, you’ll need to provide proof of your business’s registered address. 

Once you’ve shared this information and anything else the bank might need, you should be all set. The bank then verifies the information and carries out its checks. This might be completed on the same day you apply, but it can take longer. Once everything is verified, your account should be opened. As soon as you receive your card and online banking login details you can start using the account. 

Switching or opening multiple accounts

If you already have a business bank account and you’re unhappy, you can switch. 

You might be unhappy for a range of reasons. You might be looking for a better overdraft rate. You might want to earn more interest on your balance. Or your business may now need to make payments to clients overseas. Whatever the reason, you’re not stuck with your existing business account.

Just like when you switch your personal current account, the Current Account Switch Service (CASS) takes care of everything for you. CASS moves over your direct debits, standing orders and takes care of notifying your old bank that you’re switching. And if anything goes wrong, such as a payment is missed, CASS comes with a guarantee to make sure you aren’t out of pocket. 

If you run multiple businesses, then it might be helpful to have more than one business bank account. There’s nothing stopping you from opening more than one account.