When you are first starting in business, there is so much to be thinking about, and you can quickly become overwhelmed and miss vital things that need to be done. One of those is business banking and whether you need to open a dedicated business account or not. Like most things in business, the answer isn’t always so black and white. This blog will look at when you do and don’t need a dedicated business account and why you should consider having one regardless.

Bank Account

What Is a Business Bank Account?

Before we get into if you need a dedicated business account, we probably should look at what a business bank account actually is. As the name suggests, a business bank account is a type of bank account intended to be reserved for business purposes. Almost all banks offer a form of business bank account and dedicated online banking systems, such as Tide, Monzo and Mettle.

Business bank accounts tend to be opened in the business’s name rather than a personal name and will always be in the business name when you are a limited company.

When Does a Business Need a Business Bank Account?

There are situations where a business must have a business bank account. Then some self-employed business owners don’t need one. Thankfully it is straightforward to find out which category you fall into.

  • If you are a sole trader, there is no requirement to have a business bank account, and any income can be dealt with via a personal account.
  • If you are a registered limited company with companies house, then the business should have its own business account as it is separate from you and is its own legal entity.

Now just to muddy the waters here a little! If you are a sole trader or doing gig work such as food delivery for the likes of Just Eat etc., despite there being no requirement for you to have a separate account for business transactions, it is advisable to have one. Why? It comes down to knowing what is business and what personal transactions are. This is really important come Self Assessment Tax Return time – when mistakes here could cause you to under or overpay tax.

You can also make a case for having a separate business account if you ever plan to sell your business. It makes things much more straightforward when the business finances are separated from your personal ones. The same case could be made if you ever needed to raise finance or look for investors who would be more comfortable if the two were separated.

If you do not have a business account, you might also find some companies will be reluctant to send a payment for various reasons, including fraud prevention and for fear of getting tangled up in tax avoidance schemes etc.

When Does a Business Bank Account Need to Be Set Up?

If you have ever set up a personal business account, you will know it is a simple process. While opening a business account can be just as simple – it can take a little longer to do. As a rule of thumb, high street banks take a little longer to get your account set up and will almost always charge a monthly or annual fee to open you an account. This has given rise to online banking with banks such as Starling and app-based accounts from the likes of Tide.

These sorts of accounts can be opened much quicker, but there is also a cavitate to this – Starling is an actual bank, and you get the same protections as with any bank. However, not all online banking apps are banks and will not always offer the same level of protection. An example of this is Mettle – although owned by Natwest, it is just an app-based account with a pre-paid card – and not subject to the same protections offered by a full business bank account.

Be sure to choose your business bank account wisely and ensure that it offers you everything you need before putting your business finances through it.

To summarise, you are not required to have a business bank account to operate here in the UK unless you are a limited company. Still, it is advisable to do so for many reasons, which the most important is to make your life a lot easier!