The pandemic has seen a change in the way we work, with remote working more common and furlough giving us more time to pursue our ‘real’ interests. This has led to over 5 million self-employed workers in the UK. That includes freelancers, contractors and gig-economy workers.

The truth is that the economy was always moving in that direction anyway, but the past 18-months has served to accelerate this trend. And now there’s never been a better time to setup up a new business or explorer your side hustle.  The key question is Do you need a business bank account to do so?

What are the differences between a business bank account and a personal account?

A business bank account acts in much the same way as a regular current account. On a basic level it allows you to pay money in (physically or more commonly electronically), and take money out. Of course direct debit and standing orders are included in this.

Typically, a business bank account will have additional features and benefits. In part to justify the costs of the account, but also differentiate it from the competition. These often include accounting software, or integration with such software, invoice trakcing, and tax returns.

Unfortunately, there’s no such thing as ‘free banking’ when it comes to business account. Unlike basic personal bank accounts, business accounts aren’t subject to the same regulatory pressures, and are seen as profit centres for banks. That doesn’t mean there aren’t some fantastic bargains out there though, and it’s worth bearing in mind that all banking charges are tax deductible costs for your business.

Do I need to open a business bank account?

Yes, and no. The truth is that it really depends on whether your business is a separate legal entity to you.

Now we start getting into business structure, but essentially if you are operating as a sole trader, contracting (not through a LTD company), freelancing, or gig economy work such as Uber, Deliveroo etc… then you are not required to open a business bank account.

As a sole-trader the business isn’t separate from you personally, and your money and businesses money are pretty much one and the same. Where things get more complicated is that HMRC requires you to be able identify all business income and expenditure. As such even if technically you don’t need a business account, it’s often advised that you do, for two main reasons:

  • It’s much easier manage your finances if you physically separate your personal and business transactions. You’ll be thankfully for that come the end of the tax year.
  • If the bulk of your income is from self-employed activity, your personal current account provider is likely to point out that their terms and conditions do not allow ‘business activity’

If on the other than you have setup your business as a limited company, i.e. registered the business at Companies House, it is separate legal entity to you. The company’s money and your money are distinct and separate in the eyes of the law, and you would need a business account to keep them apart.

How much does a business account cost?

As we mentioned at the beginning of the article, without the regulatory pressure from the government, there is no incentive for banks to offer cheap or free business accounts like they do with personal accounts.

Typically business bank accounts from the traditional high street banks will have a monthly cover charge. For example with Santander this ranges from £7.50 to £12.50, Barclays £8.50, TSB £5 and so on.

In addition, many transactions will also have a cost. E.g. HSBC charges 50p for depositing checks, Natwest’s 35p for ATM withdrawals.

The good news is that most of the big banks offer a period of free banking for start-ups or those switching to them. These vary from 12 months to 24 months, but after this period you will be charged.

What about digital bank accounts and challengers?

Over the past few years a number of digital accounts and challengers have come onto the scene. Some of these ‘fintech’ businesses as they like to call themselves, are banks and some aren’t. We’ll get into that later.

They offer the same type of service as traditional banks, but without traditional branches. These accounts tend to be focused around an app, and offer a fast sign up process. In some cases you could have your account open in less than 5 minutes.

Being technology focused, digital accounts come with many bells and whistles that traditional accounts just can’t match. These include instant payment notification popups on your phone, spending insights and tracking, budgeting and card management services.

Another advantage of these account is the cost. Most (but not all) tend to be cheaper and more transparent than traditional bank business bank accounts. Some are specifically designed to serve traditionally underserved markets such as those with a poor credit history, or people just wanting to try out new business ideas.

These accounts aren’t for everyone though, typically you can’t pay in cheques (yes, apparently those still exist), don’t always accept international payments, and of course don’t offer in branch services. Usually you can pay in cash via PayPoint or the Post Office, but  often at a cost.

Which business account should I go for?

The account you choose very much depends on your business needs.

If you often handle cash, for example running a local shop, market stall, hairdressers etc… then a traditional high street business account is going to work better for you as it will be cheaper and more convenient to pay in that cash income.  The same goes for cheques.

If you run an online business, like an ecommerce store, selling on eBay or Amazon, or are in the service industry such as contracting or freelancing where the majority of your income is going to come from online or digital transfers, then you might be better served by and online or digital bank.

The important thing is to treat a business account like any other crucial business service, and always have a back up. The banks, just like mobile phone networks (remember the £1 a minute video calling fees back in the early 2000s?) like to think they offer ‘added value’ but in reality for they are mostly what is termed ‘dumb pipes.’

The best business bank account for cash handling businesses

Free banking
30 months
Account fee
£7 after free banking period
Available on request

Co-op Business Direct Plus is great for those regularly handling cash. It’s a universal account for start-ups, or established small or medium sized business, and offers 30 months free banking. This includes depositing up to £2,000 in cash and 100 cheques per month for free, plus if you maintain a credit balance of £1,000 or more there is no monthly service charge.

After the initial 30 months period has ended the account reverts to their standard Business Directplus tariff with a £7 monthly charge.

The best high street business bank account

The Santander Business Current account is a good all round choice for day-to-day business banking. It is often easy to open, and does well in most areas without specialising in any particular features.

It offers 18 months free banking for new businesses and costs £7.50 a month after that. A reduced £5 a month fee is offered for switchers. It used to be one of the few business account pay interest on credit balances, but it has since stopped that. Nevertheless, it is a well rounded account with fee free banking for most activities, though paying in cash over £1,000 does come with a charge.

On downside of bank with Santander is the woe-full app. The online banking is good but the mobile app is one of the worst we’ve ever come across. Using it is a exercise in frustration. With over 1.7k reviews on the iOS the Business account app receives an average rating of 1 out of 5.

Best for micro-businesses and testing new ideas

Free banking
Account fee
Available on request 1.5% annual fee plus specific interest rate

For micro-entrepreneurs, side-hustles, and sole traders Tide is our top pick. With no monthly charge and with costs of just 20p per transaction the barrier to entry is low, meaning less time thinking about banking and more time concentrating on your fledging business.

The Tide account comes with a Mastercard debit card and in true challenger style a new account can be opened in around 5 minutes. In fact you can open multiple free accounts and manage them all from the Tide app, which is why we think it’s great for those managing multiple small business and trailing new ideas.

Read out review of the Tide business account

The best for established businesses and those trading internationally

Free banking
Account fee
Available on request – 1.5% annual fee plus specific interest

If you are running an established business you’re probably banking with one of the high street giants and has come to the end or are about to come to the end of your free banking period.

If that is the case the Starling ought to be on your radar. Gaining it’s banking licence in 2016, Starling started out with personal accounts before opening up to businesses in 2018.

Starling standard business account is free. No monthly fees, or debit card charges. Just free simple banking. It has all of the features you’d expect from a hot new fintech, include a slick mobile app, with complete card management, instant payment notifications, and integration with some of the most popular accounting packages. Just like with personal accounts your business account be moved to Starling under the Switch Guarantee.

Whilst the account is free, that business tookit addon (£7 month) might be worth a look. It provides invoice creation, automated HMRC tax calculation, and VAT records.

Being a digital bank cash must be paid in a Post Office, but cheques can be posted. What sets starling apart is the ease in accepting international payments and the ability to add additional Euro and USD accounts to your business (£2 and £5 month respectively). That makes it a great account for those conducting sending and receiving money abroad.

Sticking with that theme there also no ATM fees for using the debit card abroad, and your get the Mastercard exchange rate for any foreign card spending.

Best for growing businesses

Free banking
Account fee
None but 0.5% cashback on spending
available on request

Cashplus has a great proposition here. It has been offering business account since 2005 and more recently was granted a banking licence.

The fees are comparable with some of the more expensive traditional banks, but it makes up for that with features and functionality particularly for growing business and those taking on staff.

This app/web based business bank account can be opened in less than 5 minutes and comes with a Mastercard debit card. There are no credit checks, meaning the account is particularly easy to open for those who might have had problems with credit in the past.

What makes it useful for growing businesses are things such as Sage integration, business expense cards and management, and euro currency card. Additionally Cashplus can also provide a number of business lending services including credit cards, cash advances, and overdrafts.

The Cashplus account has an annual fee of £59. Direct debits and purchases are free, but there are transactional fees for standing orders and transfer out (after the first three in the month). It also costs £2 to use the debit card ATM withdrawals, meaning the account is more for those that don’t need to physically handle cash.

Be sure to read our full overview of the Cashplus account, it’s features and costs.

Best business bank account for those with poor credit histories

Free banking
Account fee

If you have a poor or adverse or otherwise bad credit history, it can be difficult to open a business bank account. Whilst some of the options above are able to be opened without a credit check, the Acorn account is specifically designed to service this market and help those with a poor history to get their business account up and running.

Unfortunately it is one of the most accounts on the market. So that really needs to be factored in when budgeting. Links to the full list of fees and charges can be found in the bottom right corner of the application page.

Is my money safe in a business bank account?

The money you (your business) holds in a business bank account is protect in the same way as your personal bank account. All bank current accounts and savings are covered by the Financial Services Compensation Scheme (FSCS).  This is a fund regulated by the Financial Conduct Authority (FCA) promising that in even that bank goes bust or otherwise insolvent you will get your money back.

There is a limit on this up to £85,000 per person per institution. Some institutions share that across their brands. That is something to be aware of, especially as a sole trader where there is no legal distinction between personal and business funds. Should you have a personal account First Direct, but a business account (sole trader) with HSBC, you would only have protection up to £85,000 across the accounts.

E-money providers

Some institutions offering business accounts aren’t banks. These are operating under e-money regulations which although a little less robust still offer good protection. Under these regulations customers’ deposits will be held a main clearing bank such as Barclays or Natwest. This money is held separately from the business and cannot be used for risky business activities.

The risk is slightly higher with e-money providers because even though you will get your money back if they go bust, you will not get anything back in the unlikely event of the bank holding the deposit failing. That being said, the risk is small.

Who has what protection?

  • Co-op Bank – Full FSCS protection
  • Stantander – Full FSCS protection
  • Starling Bank – Full FSCS protection
  • Cashplus – Full FSCS protection
  • Tide – Full FSCS protection though it’s partnership with Clearbank
  • Acorn – E-money provider. Customer despots held at Barclays

How do I open a business bank account in the UK – what ID/documents do I need?

The ease of which a business bank account can be opened depends entirely on your business structure and the bank you apply at. The process is generally more straightforward for sole traders as additional checks and paperwork is required by limited companies and their directors.

Digital accounts are quicker and easier to open that those with high street banks. This is because more their checks are automated.

Typically to open a business bank account you must be a UK resident and need the following documentation:

  • ID – ideally a passport (national ID cards from EU countries may still be accepted)
  • Proof of address – usually a utility bill within the past 3 months

Limited companies will also need:

  • Personal details ID address for each director
  • Company registration number or details – as held at Companies House
  • Tax and VAT details

Before applying to open a business bank account take a look at our article on ‘how to open a business bank account‘ originally it was aimed at those with a poor credit history, but the process it outlines is useful for anyone planing to open a new account.



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