What is a business bank account?
Business bank accounts are aimed at both start-ups and established businesses. Banks usually charge business customers a monthly or annual fee, although many offer a fee-free period of up to two years for new customers and startups.
As with personal bank accounts, you can make deposits and withdrawals, use a debit card for purchases, and apply for an overdraft.
The difference is that most banks will charge you per business transaction so you may have to pay a small fee every time you deposit cash, issue a cheque, set up direct debits and standing orders, or make a bank transfer.
This guide explains how business bank accounts work, how charges are applied, and helps you compare the full range of accounts currently available.
Who offers business bank accounts?
Most of the big high street names offer a range of business bank accounts.
These include: Bank of Scotland, Barclays, Clydesdale Bank, HSBC, Lloyds Bank, Metro Bank, NatWest, Royal Bank of Scotland, Santander, the Co-operative Bank, TSB and Yorkshire Bank.
Challenger banks Starling and Monzo are also competing in this market, along with e-money providers such as Tide.
Can I use my personal account for business?
It depends on the type of business you run, and how lenient your bank is.
Limited companies are required to have a business bank account, as they are separate legal entities from the owner or directors.
Sole traders can theoretically use a personal current account for business transactions because HMRC treats their personal and business income as one.
In reality, most banks state in their terms and conditions that individual accounts can only be used for personal use and not for business purposes.
That said, they are likely to be less concerned about a self-employed copywriter than a shop owner making lots of business-related transactions.
What are the benefits of a business bank account?
While using a personal account for very basic business transactions will be the cheapest option, having distinct accounts is much easier for tax purposes and working out tax-deductible business expenses.
It will appear more professional if customers or clients can make payments to the business name, instead of your personal name.
You can also cash-in cheques made out to the business and build up credit history so that it’s easier to apply for a business loan or credit card.
Banks may offer business customers extra support, such as a local ‘relationship manager’ and online tools to help with accounting and invoicing.
Business bank account fees and overdraft charges explained
Business bank accounts carry fees for many of the transactions personal current account customers are used to getting for free.
Broadly, these are the main categories to think about when you’re looking at the list of fees and charges in the terms and conditions:
- Automated payments (in or out) - e.g faster payments,bill payments, direct debits, standing orders, online/mobile/telephone banking and ATM withdrawals
- Cash payments (in or out) - e.g deposits and withdrawals via a bank branch and transactions at a Post Office counter
- Manual payments (in or out) - e.g cheques written and deposited, deposits made by paying in slip or debit card plus any other non-automated cards
- Additional payments and services - e.g CHAPS (for high value same-day payments, issuing a banker’s cheque, audit replies)
- International transactions - e.g non-Sterling card transactions, SWIFT payments (international) SEPA payments (cross border Euro bank transfer)
- Overdraft charges - whether authorised or unauthorised (exceeding your authorised limit). Although this is not a sensible option for long term borrowing (a business loan is much cheaper), business customers can generally borrow much larger sums than personal customers
Should you consider a business banking app?
As well as Starling and Monzo, providers such as ANNA Money, Cashplus, CountingUp, Mettle, and Tide offer business accounts that are primarily operated via a mobile app.
These apps are packed full with features designed to help with the day-to-day running of your business.
Most of these accounts provide a full UK account number and sort code plus a Mastercard debit card (Mettle offers a prepaid debit card instead).
Not all of these apps are regulated which means you’re not protected if they went bust.
Starling and Monzo are UK-regulated banks, so deposits are eligible for Financial Services Compensation Scheme (FSCS) deposit protection (up to £85,000) if they went bust.
Cashplus is the trading name of Advanced Payment Solutions Limited, and is also FSCS protected.
If you have a Tide account with ClearBank then you’re also protected by the FSCS. Its e-money accounts are not.
CountingUp and Mettle offer e-money accounts provided by PrePay Technologies Ltd, trading as PrePay Solutions or PPS. These accounts are not covered by the FSCS, although PPS is authorised by the financial regulator under the Electronic Money Regulations 2011. As a licensed e-money provider, your money must be kept in a safeguarding account so that it can never be loaned out to other customers.
ANNA Money has partnered with TrueLayer, another e-money provider, so there is no FSCS-protection.
Business banking at the Post Office
If you’re a business customer with any of the banks listed here, you can use the Post Office network for basic transactions such as cash and cheque deposits, withdrawals and change-giving.
If you’re planning to rely on the Post Office for business banking, check that you can make the most of the services you’ll need.
Bear in mind that an increasing number of post offices are situated inside newsagents and convenience stores, or limited to Outreach services which may only operate a few days a week.
How do I open a business bank account?
First and foremost, your chosen bank will need to identify who you are and where you live, to carry out credit and security checks.
Along with photo ID (UK or foreign passport, national identity photocard, driving licence) you will need to prove your UK address using at least one of the following:
- bank or credit card statement (less than three months old and not printed from the internet);
- mortgage statement (less than 12 months old and not printed from the internet);
- council tax bill, payment book or exemption certificate (less than 12 months old);
- letter or bill from a utility company (less than six months old and some banks will not accept a mobile phone bill).
They may also need to make these checks if anyone else will be authorised to operate your account, or owns a significant share of the business.
UK Finance - the main trade association for the banking industry - has made a comprehensive list of information banks will want.
Can I switch my business bank account?
As long as you’re a small business, charity or trust with less than 50 employees and an annual turnover of less than £6.5m, you can switch your business account within seven working days through the free Current Account Switch Service, just as you would a personal account.
This means the switch is backed by the Current Account Switch Guarantee, so any missed payments or fees incurred as a result of your switch will be reimbursed.
Check the list of participating banks and building societies to make sure you can switch.
Are business bank accounts FSCS-protected?
Yes, the Financial Services Compensation Scheme (FSCS) protects individuals and small businesses from losses, should an authorised bank or building society fail.
For deposit claims (money held in savings and current accounts) there is no size restriction for companies.
For investment claims, the FSCS will protect a small company, as defined in section 382 of the Companies Act 2006.
For most general insurance claims, annual turnover must not exceed £1m and for long-term insurance claims, there is no size test for companies.