Whether you’re a sole trader or have a side-hustle, it’s often recommended that you open a separate bank account to manage your finances. A number of UK providers offer bank accounts that have been designed for those who are sole traders.
Compare bank accounts for sole traders
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Latest reviews of business accounts for sole traders
Can I use my personal bank account as a sole trader?
Unlike limited companies, there’s no legal requirement for a sole trader to open a business bank account.
However, legal aspects aside, most banking providers don’t allow personal current accounts to be used extensively for business purposes.
So, if you’re a sole trader, it shouldn’t be a problem to accept payments for the work you have carried out. But if a high volume of business-related payments is noted going in and out of your personal account, then your bank may contact you and ask you to set up a business account.
Should I get a business bank account as a sole trader?
If you’re going to be doing a huge amount of business banking, we’ve already established that even as a sole trader you probably won’t be allowed to use your personal current account for that.
But apart from that point, there are lots of other advantages that come with setting up a business bank account.
For one, it makes it a lot easier to keep your personal and business finances separate, especially when it comes to the end of the financial year and you need to work out your tax bill.
And then there’s the fact that some business accounts come with great features to help you manage your cash flow and bookkeeping.
Depending on which account you sign up for, you could benefit from an invoice creation service, expenses management, spending categorisation, budgeting tools and tax and VAT calculators. If you already use a different accounting software package, such as QuickBooks or Xero, these accounts can often integrate directly with those too.
And with a raft of new digital account providers on the market, you can usually manage all of this on the go through a slick mobile banking app.
How to set up a business bank account as a sole trader
Some banking providers have specific accounts designed for sole traders, while other banks will just let you use their standard business account. The application process varies by provider, but most can be completed online now.
In general, when you open a business account as a sole trader, you’ll be asked for proof of ID, proof of address and your contact details (plus your business name and address, if you have chosen to set these up as separate to your own). You might be asked for some details about your business, and a credit check may also be carried out.
How much do business bank accounts for sole traders cost?
This varies depending on which banking provider you go with, but unlike personal current accounts (which many of us are used to getting for free), it is far more common to be charged for using a business account.
Some business accounts come with a monthly fee, typically between £5 and £10, while others are free to set up and operate.
There will often be small charges for individual transactions, such as setting up direct debits, making or receiving payments or depositing cash into the account.
With some accounts, you get a certain number of transactions for free each month, or you may have the option of choosing a plan that reflects your payments mix. For example, if you know you’re going to be paying in a lot of cash, you could choose the plan with cheaper cash transactions charges as opposed to one with cheaper electronic payment charges.
Make sure you take all of this into consideration when you select your account, since tiny individual charges can run up to a big total if you’re carrying out a lot of transactions.
Also, remember to look out for any free introductory offers. Some banks will offer free everyday banking for the first few months or even the first year or two (although you will have to pay any business banking fees after that).
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 Zero, 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.
Using digital business accounts vs a traditional account
An increasing number of digital-only bank accounts have launched onto the market in recent years such as Tide, Revolut and ANNA Money, but how do they compare to traditional high street bank accounts and why should you choose one?
One of the biggest benefits of opening a digital business account is that the application process is quick and straightforward. In many cases, your account will be open the same day you applied. Some digital business accounts can even be opened without requiring a credit check, making them a good choice if you’re just starting out and have a limited credit history.
Many digital-only accounts also offer more innovative features compared to traditional bank accounts, whether that’s through linking to accounting software, offering budgeting tools, or including fee-free foreign transactions.
However, there are of course downsides. For a start, you’ll need to be happy managing your account online or via an app. Depending on the provider, you may also be able to manage your account via the phone, but there will be no bank branches to pop into if you need assistance.
Unlike high street banks, money held with digital business accounts won’t always be protected by the Financial Services Compensation Scheme (FSCS) either. This protects up to £85,000 per person, per financial institution. Instead, your money is likely to be protected by safeguarding requirements under the Electronic Money Regulations 2011.
Finally, keep in mind that because many digital-only business accounts do not carry out credit checks, they also will not offer overdrafts. In comparison, most high street bank business accounts will offer credit, including overdrafts and business credit cards. Again, you’ll need to weigh up what’s most important to you to help you decide.
Pros and cons of setting up a business account as a sole trader
- Keeps your personal and business finances separate
- Easier to work out your tax and expenses
- Some business accounts come with tools to help with invoicing, expense management and tax calculations
- Business bank accounts usually come with monthly and/or transaction fees
- A sole trader with small-scale banking requirements may not need one
The bottom line
It’s not a legal requirement for a sole trader to set up a business account for their banking needs (like it is for limited companies), and business accounts do often come with fees attached. But there are several advantages to opening one, including making the management of your business finances easier and being able to take advantage of any invoicing, cash flow and tax calculation tools that may come with it.
Frequently asked questions
More guides on Finder
5 must-know banking tips when setting up as a limited company
Find out how to approach business banking for the first time when establishing your company. Paid content.
3 benefits of connecting your business bank account to a cash flow insights tool
Find out how a deeper view of your business finances can help you drive growth. Paid content.
Juni business account review
Learn more about Juni’s business account for ecommerce and online marketing entrepreneurs.
Wise business account review
Learn more about the benefits of opening a business account with Wise
SumUp business account review
Find out more about the SumUp business account, including its pros and cons.
How to choose a multi-currency account for your business
As more businesses plan to go global, find out how a multi-currency account could benefit your operations. Paid content.
Cashplus vs Tide: Which is best for your business?
Find out whether the Cashplus or Tide business account could be the better option for you.
Best multi-currency business accounts
Discover what multi-currency business accounts are, how to get one and whether it’s worth applying for.
Compare the best business bank accounts for ecommerce
Discover how opening a business bank account could benefit your e-commerce business.
What is a company formation?
Discover the essential steps of a company formation and the pros and cons of this process.
Ask an Expert