Do I need a business account?

Whether you're self-employed, a sole trader or a limited company, discover if you need to open a business bank account in the UK.

In general terms, you don’t need necessarily need a dedicated business bank account if you’re a sole trader, but different rules apply to limited companies.

Do I need a business bank account if I am self-employed?

This will depend on whether you have set yourself up as a sole trader or a limited company.

If you are a sole trader, there is no legal requirement to set up a business bank account. However, be aware that while some personal bank accounts will let you process work-related payments on a small scale, others stipulate in their small print that you cannot use them for business purposes at all. In that case, you would be breaking the terms and conditions of your personal account, so it is worth checking with your banking provider, and that outcome may mean you need to set up a separate business account. Learn more and compare business accounts for sole traders here.

There are, of course, other advantages to having a business account as a sole trader. In particular, being able to keep your personal and business finances separate, making it easier to calculate your expenses and your tax bill at the end of the year. Plus many business accounts now come with handy digital tools to help you manage your everyday cash flow.

If you are self-employed and have set yourself up as a limited company, then it is a legal requirement to have a business account if you are using banking services.

Do I need a business account for a limited company?

If you are the owner of a registered limited company, and your business is using banking services, then you legally need to have a business account that is separate from your personal account.

This is because a limited company is a separate legal entity. And this rule applies whether you are a single self-employed person trading as a limited company or you are part of a bigger limited company where you are one of several owners. Learn more and open a business bank account for a limited company here.

Pros and cons of having a business bank account

Pros

  • If you’re a limited company, then legally you will need one in order to do your business banking.
  • If you’re a sole trader, it helps keep your personal and business finances separate when it comes to your bookkeeping and tax bills.
  • Many come with digital features such as invoice creation, expense management and spending analysis.
  • It would open up the option of business credit cards or business loans if your provider offers these.
  • Some business accounts come with fee-free introductory banking periods.

Cons

  • There are monthly and/or transaction fees payable with the majority of business accounts.

Verdict

As a sole trader, you don’t legally need a business bank account, but you will have to open one if you are a limited company. Although whether you legally require one of not, business bank accounts do come with other advantages, such as keeping personal and business finances separate (which helps with tax reporting at year end) and the option of using of digital tools for invoicing, expense management and spending overviews. Learn more about and compare business bank accounts here.

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