Do you need a business bank account? Here’s what you should know

When you’re starting a business, there’s a lot to think about – and opening a business bank account might not be top of your to-do list. But for some businesses, it’s not optional. And, even if you’re not legally required to have one, there are plenty of reasons why you might want one anyway.

When it’s mandatory

If you’ve set up a limited company, the answer is straightforward: yes, you need a business bank account. That’s because your company is legally separate from you as an individual. Companies House recognises it as its own entity, which means its finances need to be kept completely separate from your personal money.

The same rule applies if you’re running a limited liability partnership (LLP) or limited partnership (LP). If the business has its own legal identity, mixing personal and business finances simply isn’t allowed.

When it’s optional (but still worth considering)

If you’re a sole trader, freelancer, or general partnership, you’re not legally required to open a business bank account. Technically, you and your business are one and the same in the eyes of the law, which means you can use your personal bank account for business transactions – as long as your bank allows it.

But just because you can doesn’t necessarily mean you should. Using a personal account for business can quickly become messy. Imagine trying to work out which transactions are personal and which are business-related when you’re preparing your Self Assessment tax return. It’s a recipe for confusion (and possibly errors that could cost you).

Why a business bank account makes sense

Even if it’s not mandatory, there are some compelling reasons to keep your business finances separate:

• It makes tax time easier. When all your business income and expenses are in one place, calculating profits and preparing your tax return becomes straightforward. Some business accounts even let you create separate pots to set aside money for HMRC. 

• You’ll look more professional. When clients pay into an account with your business name on it rather than your personal name, it can build trust and credibility. It signals that you’re serious about what you do.

• You get access to useful tools. Business accounts often come with features you won’t find on personal accounts – think invoicing software, accounting integrations, and expense tracking tools that can save you hours of admin.

• You’re building business credit. Having a business bank account helps you establish a credit history for your company, which can be crucial if you ever need to apply for a business loan or credit card down the line.

• You’re ready to grow. As your business expands, you might need features like payroll management or the ability to make bulk payments. Starting with a business account means these tools are there when you need them.

What about FSCS protection?

Most business bank accounts are covered by the Financial Services Compensation Scheme (FSCS), which protects up to £120,000 per person, per financial institution if the bank fails. Some business accounts offer even higher protection.

Making your decision

If you’re running a limited company or partnership with limited liability, this decision’s already been made for you – you need that business account.

But if you’re a sole trader or freelancer, think about your situation. Are your finances relatively simple, with just a handful of transactions each month? Or are things getting complicated enough that separating business and personal money would give you peace of mind (and save you a headache at tax time)?

The right business bank account can be more than just a place to store money – think of it as a tool that’ll help you stay organised, look professional, and set your business up for success.