Business bank accounts for contractors

From a finance and tax point of view, contractors are no different from other types of business, meaning that they can hugely benefit from having their own dedicated current account.

A business account is a great financial tool to get paid, manage expenses, and keep your finances in good working order.

Do you need a business bank account as a contractor?

If your business is set up as a limited company, then yes. As your business is a separate legal entity, its finances must not be mixed with your personal ones.

If you are set up as a sole trader instead, technically there is nothing stopping you from using your personal account for professional purposes. However, it’s not advisable because it will make it harder to separate the two things, work out how much you earn exactly, keep track of paid invoices and so on.

Using your personal account for business purposes is also likely to violate your bank’s terms and conditions.

How to open a business account if you are a contractor

Depending on the account provider you choose, you will be able to open the account in person or online.

You will need to provide both your business and your personal details and documents, including:

• Your business name and address
• Companies House registration number if you’re a limited company
• Certificate of incorporation
• Your own personal details and contact information
• A form of ID
• Proof of address
• Estimated business turnover
• Personal bank or financial statements

Eligibility criteria and required details and documents can vary from bank to bank.

Best for

Small businesses

Tide

Best for

Integrated accounting software

Mettle

Best for

Beginners

Amaiz

Best for

Poor or no credit history

Cashplus Business Bank Account

How to compare business bank accounts for contractors

There is no such thing as dedicated business accounts for contractors, so you’ll have to make do with what the market has to offer to small businesses in general. Some things to consider are:

• Application process. Setting up a business account can take time with some banks, while others are quicker and easier to deal with. As a contractor, you may not need a super complicated account with lots of features, so it’s worth looking for a more straightforward and sleek option.
• Costs and fees. Business accounts tend to be more expensive than personal accounts, so always check them carefully.
• Managing the account. How do you prefer managing your account? Online, in person, over the phone? Some banks will not offer all the options, so it’s worth considering this in advance.
• App and digital services. These days having a good digital banking service and a slick banking app makes all the difference, especially for a busy contractor who doesn’t want to spend a lot of time dealing with banking administration.
• Customer service. If anything goes wrong, you want a bank that can help you sort things out quickly and efficiently. Having a look at the bank’s reviews online can’t hurt.
• Extra features. A lot of business bank accounts include features that can help you manage your business finances, such as overdrafts, invoicing and accounting services, and budgeting features in the banking app.

As a contractor, you might find it useful to have a look at online-only business accounts, especially if you don’t deal with cash and are comfortable with technology.

Online business accounts tend to be quicker to set up and cheaper, and pay particular attention to their mobile banking apps, which tend to work better and have more features.

Pros and cons of a business bank account if you are a contractor

The bottom line

Business bank accounts may sound complicated, but in fact it’s quite easy to get one for a small business, and it will help you organise your finances and manage them easily.

As a contractor, you probably want to look for a straightforward business account without too many frills, that can be accessed online in no time from wherever you are.

Frequently asked questions

• Are business bank accounts safe?

  As long as your business account is with a fully licensed bank, it will be covered by the FSCS, which means that your deposits are protected up £85,000.

  If you choose a digital provider that is not a fully licensed bank, make sure that it is still registered with the Financial Conduct Authority. Most will have an electronic money licence, meaning that even if they are not protected by the FSCS, your deposits will be kept in so-called “segregated” accounts that cannot be accessed by the company, even if it were to go bust.

• Do I need to open my business account in person?

  It depends on the bank, but if you choose a traditional bank (Barclays and the like) you will often have to visit a branch to open a business account, unless you are already an existing customer.

• Can I get a free business account?

  Yes, some banks do offer business accounts that are almost completely fee-free; have a look at Starling Bank, for example. You will likely have to pay a monthly fee if you want its most advanced features though.