How to change bank accounts when converting from a sole trader to a limited company

Switching from operating as a sole trader to a limited company isn’t uncommon, but what should you do about your business bank account?

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Rachel Wait

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As your business grows, you might decide to stop operating as a sole trader and start operating as a limited company. If you make the leap, you’ll need to think about what accounts you’ll need to file and you’ll need to consider your business bank account.

Can I use the same bank account if I change from sole trader to limited company?

No, if you’ve decided to switch from operating as a sole trader to a limited company, you can’t use the same bank account. That’s because, as a sole trader, your business isn’t legally separate from you – financially, you and your business are one and the same. In other words, the money in your bank account belongs to you, and you need to pay income tax on the money paid into that account.

On the other hand, when you register as a limited company, your business becomes a separate entity from you legally and financially. The money in your business bank account belongs to the company, and your company’s income is taxed separately from your personal income.

What that means is that you can’t simply continue using the same account you used as a sole trader if you’re now a limited company.

How do I change my business account from sole trader to limited company?

To change your business account from sole trader to limited company, you’ll need to start afresh and open a brand new account. You might find your current provider offers accounts suitable for both sole traders and limited companies, so this process should be pretty straightforward.

When applying for your account, you’ll need to provide details such as your company’s registration at Companies House. You might also need to provide proof of address and proof of ID for all company directors.

If you’re staying with the same provider, once your new account is open and you’ve transferred your funds, your provider might require you to close your sole trader account. If it doesn’t or you’ve moved providers, you can ask the bank to close your sole trader account on your behalf, or you might prefer to keep it open in case you want to use it again at a later date. If you keep it open, be warned that your provider might close it if you don’t use it for a number of years.

Can I use the Current Account Switch Service to change from a sole trader to a limited company account?

If your old bank account is a sole trader account and you’re moving to a limited company account, you’re unlikely to be able to use the Current Account Switch Service. But if you’re not sure, it’s worth asking your new provider first.

If you can’t use it, you’ll need to cancel all direct debits and standing orders on your old account and set them up on the new account yourself. You’ll also need to transfer all your payments to your new account and update customers, suppliers and debtors with your new details.

Keep in mind that if you want to switch to operating as a limited company, you need to inform HMRC and register under your new structure with Companies House. You also need to transfer any business assets you own, such as property or equipment, to your limited company. Additionally, if you have business insurance in place, you must inform your insurer about the change.

Bottom line

If you want to transfer your business from a sole trader to a limited company, you’ll need to open a new business bank account and make sure all your payment details have been updated. Once you’ve made the transfer, you might be able to keep your sole trader account open, but it likely makes more sense to close it.

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