A Guide to Finding the Best Business Bank Account

When starting up your own business, you’ll also be considering your options for finance. This might involve looking for the best business bank account for your firm. But how will you know which is the right option for you?

A Guide to Finding the Best Business Bank Account for Your Company

*Reminder: At Halkin, we’re prepared to offer our clients a range of virtual office spaces to act as a working solution in the time of the pandemic. To find out more about how we’re handling COVID-19, please get in touch with our team today. We’ll be ready to answer any questions you may have.

Below, we’ve set out a guide to give you some of the answers, including information and advice on business bank accounts themselves, the benefits of opening one, how to choose one, and what you’ll need on hand when you go to open it.

What is a Business Bank Account?

A business bank account works much in the same way as a personal bank account, only it’s opened solely for income and expenditure that’s related to your business. There are, however, different types of business bank accounts that you may consider opening. Which one you choose will depend on what you would like to achieve with the account once it’s been opened. This may range from simply watching the money go in and out as needed, to issuing invoices, running payroll for employees (if needed) or even getting help with accounting and filing tax returns.

Many business owners will be looking for free business banking for their firm, though this doesn’t really exist. Instead, we would suggest looking for the best bank account for your particular needs, while keeping the price of each in mind to help your finances.

Who Needs to Open a Business Bank Account in the UK?

Whether or not you need to open a business bank account in the UK is connected to the type of business you have. You’re legally obliged to open a business bank account if you’ve set your business up as a limited company (i.e., you’ve registered your business at Companies House). This is because limited companies, which can also be called Limited Liability Partnerships, are a separate legal entity from you as an individual, and will therefore need a separate business account.

You won’t be legally obliged to open a business bank account if you are a sole trader or freelancer, contracting (apart from if you’re doing it through a limited company), or doing gig work. This is because your business isn’t considered legally separate from you, and the tax office will treat any income from your business the same way it would treat your personal income. Partnerships (two or more sole traders working together) may also choose to operate through a joint personal account.

Even if you’re in a position where you don’t need a bank account, you may wish to consider opening one for a startup or small business anyway. Keeping your company’s financial information separate from your own is often easier, especially if most of your total income is coming from your work as a self-employed individual.

To help you decide whether or not you need an account for your new business, consider looking at your business expenses. If you’re offsetting things such as phone calls, stationery and office materials, or plane or train tickets against your income, you should think about getting a separate account for your firm.

What are the Benefits of Opening a Business Bank Account?

As well as keeping your personal finances separate from those earned by your business, you’ll also find a number of other benefits become available when you choose to open a bank account for any new business or startup venture:

You’ll Save Time on Admin

All invoices will be paid directly into your business account, saving you time that might have otherwise been spent trying to sift through and separate your expenses. You’ll no longer have to work out if the money that’s recently been transferred out went to help your company in some way, or if it was a personal purchase.

It Makes Doing Tax Returns Easier

Having a bank account for a new business or startup will make it easier to do your tax return for HMRC, because the information needed is all in one account. Similarly, if HMRC ever has to investigate your business finances, everything the expert needs to see will be in that account as well. They won’t have to look into your personal finances alongside it.

You’ll Build Your Credit Rating

Opening up a new account for your business will allow you to build up a credit history, which will make it easier for you to apply for business finance products, such as loans, in the future. You may not be eligible for these if you only have a personal account.

You’ll Get to Use Bespoke Features

These make it easier to do certain things for your business, such as paying your employees if you are planning on hiring.

You Won’t Break Your Bank’s Terms and Conditions

Many banks often put a clause on their personal accounts which states that you’re not supposed to use them as business bank accounts.

This is unlikely to affect you if you’re a freelance worker, such as a writer or photographer, and you have earnings transferred into your account. However, if you own a stall or sell food from a truck and make a lot of transactions every day then your bank may close your personal account. They may also ask you to open a business account instead.

Which is the Best Bank to Open an Account With?

Strictly speaking, there is no “best bank” to open a business account with. There is only the bank that offers your new business or startup venture the package you need, with all the related benefits. These should be the deciding factor when you choose which account to open, and which bank you choose to conduct your business with.

We should also note that some banks will ask you to pay monthly fees in order to open accounts and keep these benefits.

Factors and facilities you may consider when choosing a business bank account in the UK include:

Account fees ‒ are the benefits associated with the account worth the price of monthly charges?
Convenience ‒ do you prefer banking online, or will you need a local branch to pay in cheques?
Business support ‒ does the bank you’re planning on choosing offer advice to new business owners?
Overdrafts ‒ will you need a buffer because of tighter cash flow?
In-credit interest ‒ will the account you’re picking let you earn interest on the money sitting in your business account balance?

Choosing the Best Business Bank Account in the UK

There are many websites online that can offer you comparisons of bank accounts that will suit a small business, or a new company that’s just starting out. We’ve listed a few of the larger names to help you get started, as well as a few other recommended business current accounts that may suit your needs if you’re trying to save money:

TSB Business Plus Account

Interest: 0% AER interest on in-credit balances
Monthly fee: Free for the first 6 months, then £5 after this time
Overdraft: Upon invitation

This offers you great savings account with instant access ‒ 0.30% AER variable for balances over £5,000, subject to eligibility and application.

You’ll be able to manage your money at any time of day or night via the bank’s mobile app and online services, but you can also visit in-branch at 300+ locations across the UK.

This account also offers contactless payments, with free Square Reader on request, and no fees on your first £1,000 sales.

However, to be eligible for this account you will need to be a sole trader, partnership, or limited UK business.

The Business Debit Card will also allow you to make ATM withdrawals and you will pay no fees on transactions using your Debit Card.

To find out more, please see the TSB website.

HSBC Kinetic Business Current Account

Interest: 0% AER interest on in-credit balances
Monthly fee: £6.50
Overdraft: Upon invitation

This account might be the right one for you if you are a sole trader, or a limited company with one director and one shareholder. With this service, you’ll also be able to deposit money and cheques at any HSBC branch or Post Office, and deposits are free during the early access period.

You should, however, be aware that you can’t apply for this type of account if the sole purpose of opening it is to access a Bounce Back Loan (BBL). All applications are subject to eligibility and will also require a credit check.

To learn more about this account, please visit the HSBC webpage.

Co-operative Bank Business Directplus Current Account

Interest: 0% AER interest on in-credit balances
Monthly fee: £7
Overdraft: Upon invitation

If you are a sole trader or single director and you decide on this account, you’ll find it’s easy to apply online in minutes. You’ll also be able to carry out all your banking online from that moment on, and you can make use of an authentication app as well.

There will be no monthly service charge if you maintain a credit balance of £1,000 or more. All automated debits (e.g. standing orders or Direct Debits) and writing up to 30 cheques per charging period are also free. Regardless of the balance, you’ll also find that there are no charges for automated credits and cash withdrawals.

You’ll be able to deposit £2,000 in cash and 100 cheques per charging period for free via the Post Office and any Co-operative Bank branch.

It must be noted that this account is only available to new Co-operative Bank customers maintaining a credit balance of £1,000+. All applications made are subject to status and eligibility as well.

If you’d like to learn more, please go to the Co-operative Bank website.

Tide Business Current Account

Interest: 0% AER interest on in-credit balances
Monthly fee: No monthly fee
Overdraft: No overdraft facility

This type of account is great for sole traders, SMEs, and Limited Companies, with an easy system for applying online within minutes. You won’t need a credit check or any paperwork to get started, and up to £85,000 of your eligible deposits will be protected by the Financial Services Compensation Scheme (FSCS).

Everything you need for your business’ finances will be available to you on the service’s secure app. You’ll also be able to integrate software such as QuickBooks and Sage in order to keep your financial reporting easy.

To apply for a registered business account with this financial service, you must be registered with Companies House as a director of your company. Bank transfers in or out via UK Faster Payments/BACS/CHAPS will cost 20p each. Cash withdrawals and deposits via the Post Office will cost £1 each, while deposits made through PayPoint cost 3% of the total transaction value.

For more information, please visit Tide’s website.

Cashplus Business Account

Interest: 0% AER interest on in-credit balances
Monthly fee: No monthly fee
Overdraft: Upon invitation

This service won’t require a credit check and you could have your own account open in minutes, with all services handled online and through a mobile app after this time. You’ll also be able to make cash deposits via the Post Office, and make use of free UK ATM withdrawals and card transactions.

The first 10 payments sent each month will be free, but there will be a 20p charge for every transfer after this.

There aren’t any monthly or annual account fees, but a one-off £9.95 card issue fee will also apply.

For more on this, please see the Cashplus website.

Starling Bank Business Current Account

Interest: 0% AER interest on in-credit balances
Monthly fee: No monthly fee
Overdraft: 15.00% (you must have been trading for a minimum of 18 months to apply)

This account may help you on your way if you are a SME, limited company, or sole trader. You’ll be able to apply for a free digital account in minutes and your eligible deposits are protected up to £85,000 by the FSCS. You’ll also be able to integrate software such as QuickBooks, and Starling even offers a Bookkeeping Toolkit for £7 per month, with the first month free.

There are also no monthly fees, fees for ATM withdrawals in the UK or overseas, and you won’t be charged for card payments abroad. You’ll also get Mastercard’s globally accepted exchange rate.

You should also know that Starling Bank will require personal guarantees from all Persons of Significant Control/Members when lending.

To find out more about this service and what it can offer, please see the Starling Bank website.

How to Open a Business Bank Account

Generally, you can either open an account with a bank online or go in-branch and ask. Which you end up doing may depend on the bank you choose, as some services are fully digital and will only offer online services.

You’ll also need a few pieces of documentation ready in advance. These include:

A photo document which proves your identity, such as:

A valid UK or foreign passport
A national identity photocard
A full UK paper driving licence, or
A full UK or foreign photocard driving licence as issued by a member state of the EU or the EEA
A document to prove your address in the UK, such as:
A full UK driving licence
A full UK or foreign photocard driving licence as issued by a member state of the EU or the EEU
A UK or foreign bank or credit card statement (must be less than three months old and not printed from the internet)
A UK mortgage statement (which must be less than 12 months old and not printed from the internet)
A council tax bill, payment book, or exemption certificate (which must be less than 12 months old)
A letter or bill from a utility company (which must be less than six months old and not a mobile phone bill)

The business-related documents you should also have on hand include:

Your Companies House registration number (if applicable)
Details about your business, including its turnover, tax information, and other capital
Details of all the company directors or partners, including names, dates of birth, addresses, and National Insurance numbers

If you’re unsure of what you need, you can also check with your provider to see what they’ll need for you to apply.

How Tax Will Work with a Business Bank Account

Once you’ve been paid gross for a job (i.e., you’ve been paid without the tax taken off), then you should save the amount you’ll need to pay in tax in a separate account. This should be separated from what you’ll need to use for business expenses, or what you’ll use to pay yourself a salary.

If you’re a basic-rate taxpayer, you should be setting aside around 30% of your profit in order to pay tax and National Insurance. If you’re paying higher-rate tax, it should be around 40%.

Many of the business bank accounts you can open will allow you to set up a separate pot for the money you intend to pay your taxes with. Some may even estimate how much you should be paying in tax, depending on how much money is moved in and out of your account. High street banks should also allow you to set up separate accounts for tax and let you move the money across, but this is a more manual route and may require a little extra work.

If you are the director of your own limited company, you’ll often find that you’re paying corporation tax rather than income tax. How the system will work for you therefore depends on whether you’re using an umbrella company or if you’re directly contracting.

If you find that you need help when it comes to self-assessment and tax returns, you may also consider investing in a good accountant for your business.

Are You Setting Up Your Business?

If your small business is starting to grow and flourish and you know you’ll soon need a bigger, better office to comfortably accommodate your staff while holding all your equipment, contact our team today. We’ll be happy to offer you a variety of office spaces to rent across London, taking care of all in-house functions on your behalf so you don’t have to worry about losing money where it could otherwise be saved.

Our tenancies are also flexible, so if your business grows and expands beyond your current location, we’ll be able to help you move into a new, equally prestigious address in no time. We have a wide range of offices in our portfolio and each has its own unique aesthetic appearance, personality, and ethos, so you’re bound to find a building that suits you.

We can also offer affordable slots in our meeting rooms if you only need an afternoon or two to host and win over investors with your business plan. Get in touch and we’ll be glad to discuss making a booking as soon as possible.

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