It is a good idea to create a separate bank account to manage your finances when you’re self-employed so you can keep your business and personal finances in different places. A number of providers offer bank accounts for those who are self-employed. Here we look at how they work, the pros and cons, and how to pick one.
Get a £30 sign-up bonus plus up to 1% cashback with Revolut Pro.
If you're self-employed, Revolut Pro is the account made for you. It's a free account that you can open if you already have a personal account with Revolut and offers a few basic features if you're just starting out. Think freelancers, sole traders and side hustles. You can use it if your business is not registered, but if it is you'll need to apply for a Revolut Business account instead. You're able to earn up to 1% cashback, take sales and manage your freelance finances. It's easy to set up Revolut Pro for free in the app, giving you a separate Pro account and card to use for spending.
Get £250 cashback when you open a Tide business bank account by 31 March.
You can choose between three different pricing plans with the Tide business account. This includes a free option which could be suitable for freelancers, sole traders and contractors. You can then upgrade your account at any time as your business grows, but a monthly fee will then apply. All options enable you to sync your account with accounting software like QuickBooks, Sage, KashFlow and Xero, as well as automatically categorise transactions, send, pay and track invoices and upload receipts. ATM withdrawals cost £1 each, while other transaction fees will depend on the plan you have chosen. You can hold up to 5 business accounts and get 'read access' for team members, allowing them to view and download transactions. Opening an account can take as little as 10 minutes and no credit checks are carried out. Your Tide card should arrive within 2 to 4 working days.
Pros
24/7 customer support
Categorised spending
FCA regulated
Quick set-up
No monthly fees
Easy to manage accounts and track payments within the app
Ability to set up direct debits and standing orders
No annual or monthly fee when you apply using the Finder link.
The Cashplus business account charges no monthly fee and no fees for UK purchase transactions. Signing up for the account can be completed in a matter of minutes and once your application is approved, your card will arrive in 3 to 5 working days. Once your account is up and running, you can deposit cash via bank transfer or the Post Office, use your card online and instore or to withdraw cash, pay bills and expenses online and categorise spending on the go via the app. You'll also be able to track expenses and block certain transactions, order up to 20 additional cards, download statements for each card in CSV format online, manage cards via a centralised management system, and integrate your account with accounting software.
Pros
Open an account in 5 minutes
Pay in cash at any of the UK’s 11,500 Post Offices
Tools like cashflow tracking, instant notifications and integrated accounting
Cons
Traditional bank still needed for majority of your business finance needs
Do I need a business bank account or can I use my personal one?
If your business is set up as a partnership or a limited company, you’ll have to run your business finances through a business bank account, for tax and legal purposes.
If your business is a sole proprietorship, you are still taxed as an individual, so there’s no obligation for you to open a business bank account.
Can you transfer money from a business account to a personal one?
Yes, most business owners will pay themselves a salary – and perhaps an occasional bonus – from their business account into their personal account.
The important thing to do is to record and declare these transactions, for tax and bookkeeping reasons.
In many cases, these payments will be delivered automatically using a payroll software provider, so that they are automatically recorded and the taxes are paid.
If your business is set up as a partnership or a corporation, all one-off payments to your personal account will need to be signed off by your business partners.
Why is a business bank account useful for sole traders?
Although it is not a legal requirement, there are many advantages to having a business bank account as a sole trader.
Using your personal account for your startup business or side hustle might work at first, but as you start to carry out more transactions, your finances can quickly become overwhelming! This is especially true when transactions are not labelled clearly, or you want to keep an eye on the cash flow of your business separately from your personal finances.
If you choose to set up a business bank account, you’ll find it much easier to track how your business is doing as a sole trader, especially when you have many other responsibilities to keep you occupied.
As a sole trader, you are responsible for reporting your tax bill to HMRC at the end of the financial year. If you’ve been using a specific business account for all your business-related transactions, this process will be a lot quicker and easier and save you from the headache of tracking everything down.
Many business bank accounts come with additional features that will make your life easier if you are a sole trader trying to manage your business’s day-to-day operations.
Some of these include:
Interest rate
Invoice creation
Expenses management
Spending pots or categorisation
Budgeting tools
Tax and VAT calculators
Payment notifications
Setting up standing orders for expenses
If you use accounting software, you may also be able to link this with your business bank account through accounting integrations.
Many business accounts offer benefits, such as cashback when you spend with your business card. You can also get additional physical debit cards for your employees.
Finally, having a dedicated business account helps you appear more professional to your customers! It helps them to feel safe that they are sending their money to the right place and that your business is legitimate.
How to choose and compare a bank account for a sole trader
As with any financial product, the key to finding the best business bank account is to shop around and compare your options.
As part of your comparison, you’ll need to consider which features are the most important to you. For example, are you willing to pay a monthly fee or would you prefer a free account? Keep in mind that there may still be charges for certain transactions such as transfers and cash withdrawals.
You should also think about whether you might need an overdraft, whether you want your account to link to accounting software such as QuickBooks and Xero, whether you need invoicing support and whether you need to regularly bank overseas.
Don’t forget to also consider how you want to manage your account. Are you happy to bank solely online/via an app or would you like the option of being able to pop into a branch? When you’ve considered these options, you should find it easier to find the right account for you.
What does a sole trader need to apply for a business bank account?
The application process varies between business account providers, but you may need the following:
Your business name and address
Your own personal details and contact information
A form of ID
Proof of address
Estimated business turnover
Personal banking/financial statements
Pros and cons
Pros
Business bank accounts allow you to separate your business and personal funds. This makes accounting and bookkeeping far easier.
Many accounts include useful incentives and improved rates on international payments.
Cons
Business accounts don't tend to have as many incentives as personal bank accounts.
Many of the best business bank accounts have monthly account fees and may charge you for making payments.
It’s not essential to open a business account if you’re a sole trader (you’ll have to do it if you’re a limited company), but it is a good idea. It lets you keep your personal and business finances separate, making day-to-day money management easier and it helps when it comes to accounting and tax returns. Keep an eye out for account fees, especially those those which kick in after a year. If you’re not going to use the extras thrown in with a paid-for account, such as accounting software, it’s better to choose a free account and pay for the software separately.”
Bottom line
For many types of business, it is compulsory to have a business bank account. Even if this isn’t the case for them, the majority of business owners recognise the advantages of opening one. The key benefit of opening a separate bank account for a sole trader’s business revenue is that this helps with tax calculations and enables the business owner to understand their cashflow situation easily.
Frequently asked questions
No. If you run a limited company, then that company is a separate legal entity and therefore needs a separate business account.
Yes. It’s more common to find these accounts offered by digital ‘challenger’ banks like Starling and Tide.
As a general rule of thumb, your business account is likely to allow you to accept payments in foreign currencies, particularly in euros and US dollars. While some accounts will charge you a conversion fee, others will use either Mastercard or Visa’s own exchange rates. These rates are as close to perfect as it’s possible to get for converting between major currencies. It’s best to check you accounts terms and conditions to find out more.
As a self-employed person you can usually claim bank charges as a business cost. The Gov.uk website has full details on self-employed expenses.
It is possible that you’ll be credit checked when opening a business account as a sole trader.
Sources
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To make sure you get accurate and helpful information, this guide has been reviewed by
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Editorial Review Board.
Matthew Boyle is a banking and mortgages publisher at Finder. He has a 7-year history of publishing helpful guides to assist consumers in making better decisions. In his spare time, you will find him walking in the Norfolk countryside admiring the local wildlife.
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