The Definitive Guide to the Best Business Bank Accounts in the UK

Posted By ,Posted in Small Business.Tagged

The Definitive Guide to the Best Business Bank Accounts in the UK

Starting your own business? Unless you plan on stowing piles of cash in a safe in your office, setting up a business bank account should be one of your top priorities.

Here’s what you need to do to open a business bank account. We’ll also give you a rundown of the best business bank accounts in the UK in 2019.

Do I need a business bank account?

The decision to open a business bank account depends on whether you do business as a limited liability company, partnership or sole trader.

You have to open a business bank account in your company’s name if you register your business as a limited liability company. The reason behind this is because the law considers your company a separate legal person. So, you can’t mix your own money with the company’s money.

By contrast, there’s no legal rule that says you have to open a business bank account if you’re a sole trader or partnership.

In theory, this means sole traders and partnerships can get away with using personal bank accounts for business. That said, there are three very good reasons why you should still open a business bank account, even if you don’t have to:

1. It’ll be easier to do your accounts

If you use the same account for personal and business reasons, you’ll have to go through your bank statements line by line and separate business transactions from personal ones. Even the most spreadsheet-adoring accountant in the UK is bound to find this tedious. Plus, it could take several weeks to do.

2. You could get in trouble with your bank

Your bank’s Ts & Cs may not allow you to use your personal bank account for business. If your bank realises you’re doing it anyway, they may threaten to close your account.

3. You’ll look more professional

Your professional image holds especially true if you trade under a business name. With a business bank account, your clients can pay into an account named after your business. They can also make cheques out to your business instead of you personally.

How do I open a business bank account?

Opening a business bank account is a bit more involved than opening a personal account. You can start an application online. But many banks will arrange a telephone interview or an appointment in a branch to complete the process.

You’ll also have to provide personal information, information about your business and documents to back you up. The exact requirements vary from bank to bank, but they typically include:

  • Proof of your identity. This can be your passport or UK photo driving licence. If you’re an EU citizen, you can also use your national ID card.
  • Proof of your address. This document could be your latest Council Tax bill or tenancy agreement or a recent mortgage statement, utility bill or bank statement.
  • Your business name, address and contact details. If you’re a limited liability company or partnership, you’ll also need your registration number from Companies House.
  • Your estimated annual turnover. The bank may also be interested in the size and volume of payments you expect will go through your account in an average month.
mature woman managing her business bank account on a laptop

How do I choose a business bank account?

In the UK, the main difference between personal and business bank accounts is that the latter is more expensive. Many banks charge a monthly fee for business accounts (this is usually waived for the first 12 to 18 months if you’re a new business). You may also have to pay fees on certain transactions (more on this in a minute).

You’ll probably want to keep fees as low as possible, especially in the beginning stages. At the same time, you should check which bank account fits best with your business and lifestyle. And also whether you could get any additional perks.

Here are three questions to ask yourself to help you decide.

How will you pay and get paid?

Monthly fee aside, some business bank accounts have free online payments but charge for cash and cheque-based transactions. The fees aren’t an issue if you usually get paid by bank transfer and pay your bills online. But if you handle a lot of cash or cheques, you may want to consider alternatives.

For example, while Barclays’ Mixed Payments Plan charges 35p per electronic transaction, you pay only 65p per cheque. By contrast, electronic transactions would be free on Barclays’ e-Payments Plan, but cashing a cheque would set you back £1.50.

Do a lot of international business?

It’s worth looking for an account that offers a good deal on foreign exchange. This way, you’ll avoid losing money to foreign exchange fees and currency conversions.

How do you prefer to bank?

As incredible as this sounds in 2019, not all banks will let you access your business account from an app. So, if online banking is important to you — and, let’s face it, it probably is — you should check this out beforehand. It’s also worth reading App Store and Google Play Store reviews to find out what users are saying.

Think nothing beats speaking to a real person? You’ll want to pick a bank that has a branch reasonably close by. Some banks also offer a dedicated account manager. This person will act as your first point of contact whenever you need business advice or have questions or concerns.

What other perks does the bank offer?

Alongside the account, many banks offer extras to entice you into signing up with them. Perks can include:

  • Free business coaching and advice
  • Cashback on your business purchases
  • Interest on your balance
  • A discount of business products such as accounting software

Shop around to see what’s on offer and pick the account that has the addons you think you’d benefit most from.

Which bank is best for small business accounts?

Picking a business bank account is a very personal decision. That said, we’ve rounded up the five banks we think offer the best banking experience for small businesses.

Let’s go.

Starling Bank

Founded in 2014, Starling Bank is the only bank on this list that offers completely fee-free business banking for small businesses. That means zero monthly fees and zero charges when you pay and get paid online if:

  • You have fewer than 10 employees
  • Your turnover is less than £1.7 million a year

Other benefits include:

  • Have your account up and running in less than 24 hours. Download the app, upload your proof of ID, proof of address and business details and that’s that.
  • Get real-time notifications on your phone whenever a payment comes in or goes out of your account.
  • Your expenses are categorised automatically, and spending insights show you where your money’s going.
  • Set money aside, for example for your tax bill, using the Vaults feature. The money in your vault is deducted from your balance, so you can’t spend it by mistake.

On the downside, Starling is a mobile-only bank with no physical branches. That said, you can deposit cash at the Post Office. Deposits up to £1,000 cost £3 and deposits over £1,000 cost 0.3 percent. So, depositing £2,000 would set you back £6.

To deposit a cheque, you’ll need to mail it to Starling HQ.

Coconut

Coconut is a bank account and accounting software rolled into one. It’s designed specifically for freelancers, self-employed people and small business owners.

Alongside a business current account, you’ll also get:

  • Invoicing
  • Receipt capture, which allows you to store all your expense receipts electronically
  • Automatic bookkeeping, which means all your income and expenses are categorised in real time
  • A real-time tax estimate that shows you how much tax you owe based on how much profit you’ve made so far

Coconut is online only, and you can’t deposit cash or cheques (they’re working on this, though). You can get started for free, but you’ll need to fork out £5 a month to send more than three invoices a month.

Coconut also isn’t a fully-fledged bank yet. This means your money won’t be covered by the Financial Services Compensation Scheme if they go bust.

British pound banknotes from business bank account

Metro Bank

Metro Bank’s business bank account costs £5 a month. And you’ll be charged 30p per transaction for cash and cheque deposits, ATM withdrawals and payments by direct debit and standing order. But if you keep your account £5,000 in credit at all times:

  • You won’t have to pay the monthly fee
  • You can make up to 50 cash deposits, cheque deposits, ATM withdrawals, direct debit payments and standing order payments for free each month

You’ll also get a business manager to act as your main point of contact. Plus, you can use your debit card anywhere in Europe without having to pay non-sterling transaction fees.

Metro Bank’s main drawback is that their branches are in London only. You’ll also need to visit a branch in person to apply. So, if a trip to the Big Smoke isn’t an option, this is a non-starter.

NatWest

If you’ve been in business for less than a year and your turnover is under £1 million, NatWest’s business bank account is free for 18 months. Alongside an award-winning banking app, you’ll also get a free FreeAgent subscription and 60 percent off DHL international shipping for 12 months.

Once your 18 months are up, NatWest’s business account will set you back £5 a month.

Santander

Santander’s business account is free for a year if you’ve been doing business for less than a year. If you have a personal account with Santander, your free period will get bumped up to 18 months.

You’ll also get:

  • Monthly in-credit interest (this is currently 0.1 percent)
  • Up to £300 cashback a year
  • The ability to make cash deposits either at Santander branches or at the Post Office

Once your free year is up, you’ll have to pay a steep £12.50 a month, or £150 a year. But, depending on your turnover, the cashback and in-credit interest mean the account could pay for itself.

In summary

You don’t need a business bank account unless you’re a limited liability company. But having one will simplify your accounting, make you look more professional and keep you from getting in trouble with your bank.

So have a think about which bank account would best suit your business, roll up your sleeves and get to work filling it up with money.

Andre Spiteri

André Spiteri is an expert fintech copywriter with a passion for making personal finance simple and accessible to everyone. Formerly a financial lawyer, he now helps fintech businesses establish their authority online and make more sales through the power of words. Head over to MaverickWords.com to learn more.

MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.

Leave a Reply

Your email address will not be published. Required fields are marked *