Wondering what different business bank accounts are available to you in the UK? Then this guide should help.
What Is A Business Bank Account?
Business bank accounts work similarly to personal bank accounts, except they are aimed at business transactions. These accounts can be opened by sole traders, partnerships, limited liability partnerships (LLPs), societies, charities or clubs (more on this below).
LLPs and limited companies are legally required to set up a business account to keep their business finances separate (as the company is a separate legal entity).
Having a business bank account makes it easier to apply for a business credit card and submit business loan applications. It also simplifies submitting your company tax return and the auditing process.
Who Can Open A Business Bank Account?
- Sole traders: A sole trader can open a sole trader account or a normal business account.
- Limited company or LLP: These organisations are legally required to open business bank accounts.
- Societies, charities and clubs: They may be eligible to open a business account, but it depends on the provider. Some business accounts have strict requirements for annual turnover or business structures.
Different Types Of Business Bank Accounts
The type of bank account a business opts for will depend on the business structure and size, turnover, the number of employees, and the needs of the business.
Business Current Account
A business current account – or a business checking account – is a type of business account that allows businesses to manage their day-to-day finances.
Business checking accounts are great for sole traders or smaller businesses with just a few employees.
The main benefit of this account is that personal and business finances are kept separate, making it easier for business owners to track transactions, make payments, and access banking services.
Features of a business checking account include:
- Depositing money
- Withdrawing cash at ATMs
- Cashing cheques
- Transferring money
- Make payments
- Accept card payments from customers
- Online banking and mobile banking
Some business checking accounts also come with useful tools, like accounting software.
Although you have a lot of freedom with a business checking account, it is possible that your provider will require a minimum account balance in the account for it to stay open.
Apart from that, these types of accounts do not have a lot of restrictions imposed. You can have easy access to your money whenever you need it.
One disadvantage of a business current account is that no interest is accrued on the money in the account. Should you find a provider that offers a current account with interest, it is likely that this interest rate will be incredibly low – around 1%.
Small business owners will benefit from having business current accounts. They are easy to set up and enable a business owner to keep their personal finances separate from the business.
Business Savings Account
The main difference between a business current and a saving account is that savings accounts accumulate interest on the money in the account. This makes it great for unforeseen expenses or business emergencies.
Business savings accounts are protected by the Financial Services Compensation Scheme (FSCS). The first £85,000 in the account will be protected against any mismanagement or failure on the part of the financial institution, and your business will be compensated accordingly
Savings accounts do tend to limit access to funds. For example, some providers will limit how many free deposits or withdrawals you can make each month. For that reason, weigh up the interest rates versus monthly transaction fees, and make sure you get good value for money.
Joint Business Account
A joint business account, or partnership account, is when more than one person can manage the account. This is a great option if there is complete trust between business partners.
All account holders will be able to access the funds, including making withdrawals and deposits, applying for loans, and setting up debit orders.
This is great for small business bank accounts with two partners.
Fixed Deposit or Recurring Account
A recurring deposit or fixed deposit business bank account is fairly similar to a savings account. But first, let’s discuss the differences between a recurring and a fixed deposit.
- Recurring deposit: Your business deposits a set amount of money for a fixed period. For example, you could be depositing £100 per month into this account. This helps build up savings.
- Fixed deposit: You only deposit once into the account. This type of account will earn higher interest than a recurring deposit account.
A fixed or recurring deposit account sees the business owner depositing money into a bank account, and interest is earned over time. The interest rate is agreed with the bank before opening the account and is typically set, meaning the business owner has a guaranteed ROI.
Money in these kinds of accounts is typically locked in for a fixed amount of time – whether it be a week or 10 years. That means you can’t always withdraw money whenever you want and may have to pay huge fees should an untimely withdrawal be required.
These accounts are great for businesses that want to get into the habit of saving but should be used along with a current account for transactions.
A merchant account is a must for businesses that accept both debit and credit card payments.
Once a sale is made, the money from a customer doesn’t go directly into the business’ account. The transaction is first authorised by the customer’s bank and then processed by the business owner’s bank. It can take anywhere from one to three days for the money to reflect in the business bank account – a type of built-in fraud protection mechanism.
The four main merchant account types are:
- Aggregate: This is the most common type. There are no monthly fees, and the business is only charged when sales are made. Aggregate accounts are pooled with multiple merchant’s funds (for example, a franchise).
- Independent sales organisation (ISO): An ISO is dedicated to one business only. It can be tailored to the business’s needs but could incur higher monthly and transaction fees.
- High-risk: People with bad credit or who operate in high-risk industries (like travel) can open this type of account.
- Internet: This merchant account is required if you wish to receive online payments. It is a necessity for eCommerce companies – even if you have another business bank account.
Other business bank accounts
Some other business bank accounts are:
- Instant access deposit account: When you want to set money aside for emergencies that are not required for daily operations.
- Foreign currency account: When you transact with people or businesses outside of the UK who make payments in foreign currencies.
- Loan account: For any business loans taken out.
Choosing The Right Business Bank Account
It is up to the business owner to determine what kind of bank account is required. Here are some factors to consider:
- Financial Services Compensation Scheme protection: The FSCS protects deposits in a bank account up to £85,000. That means if the bank fails, your business will get this money back. Online money accounts will not have FSCS protection, however, other safeguards may be in place.
- Account fees: Many business bank accounts have a monthly fee that covers some of the transactions. Others may charge per transaction, while a rare few have no fees at all.
- Time to open a business bank account: Some providers are able to open an account on the same day or completely online, while others could take a few days or up to four weeks to set up an account.
- Minimum balance or minimum deposit: Depending on the type of account, you may require a minimum balance for your bank account to remain open. Deposit accounts may require an initial minimum deposit.
- Withdrawals: Some banks will charge you to withdraw money at an ATM, branch, or Post Office.
- Cash deposits: Some banks will charge for cash deposits, while other banks may not accept cash deposits at all and require all deposits to be online.
- Cheque deposits: Check with your bank whether the account you want to sign up for accepts cheque deposits.
- International payments: If your business is trading in other countries outside of the UK, you want to make sure your account can support international transactions. If international transfers and payments are allowed, check the fees involved.
- Mobile and online banking: Ensure your bank has mobile and online banking services to easily access your money and accounts. An app that has both your business and personal bank account in one place is beneficial.
- Business tools: Check whether your preferred account can integrate with other tools, like accounting software.
What do I need to open a business bank account?
You will require personal identification, a residential address, and a business address. Additionally, some banks may require details on your annual turnover and Companies House registration number.
Can a foreigner open a business bank account in the UK?
Yes, non-residents can open a business bank account when setting up a business in the UK. The best way to do it is to approach the bank directly.