Do you need a Business bank account?

First things first, the answer is YES!

Whether you are a sole trader, partnership or limited company, you should make sure you have a business bank account separate from your personal finances.

The real question is: 

Which bank should you choose? 

Well, that is entirely down to your needs and preferences. 

You could open a free current account; however, if the bank sees you are using it for business purposes and transactions, they may charge you as with a business bank account. Business accounts usually have a fee.

If you have a Limited company, you must have a separate bank account in the company name. 

Organisation is key

Having a separate business bank account has vast benefits for you and your business. You will be more organised by not mixing your personal and business finances, and be able to see what specific business expenses you are incurring as well as budget for this. You will be able to see your revenue and profit and how much you can transfer to your personal account from this.

As well as being more organised, you can visualise the money so that it is more real to you and you know exactly where you and the business stand financially at all times. Understanding your financial situation can help with forecasting and in turn, allow you to create the lifestyle you want.

What do you want from your bank account?

Do you want a modern interface? Would you prefer to go into a branch and speak with someone face to face, or do you want to be able to do everything from an app on your phone? Do you need to rely on overdrafts, loans or other financial services?

These are all critical questions to ask yourself when choosing a bank.

Traditional banks vs mobile apps (challenger banks)

Challenger banks are banks that want to compete against the four big, long-established banks of the UK: Barclays, Lloyds Banking Group (which includes Halifax, Lloyds Bank and Bank of Scotland), HSBC and RBS (which includes NatWest and Ulster Bank).

Challenger banks can be set up on the same day and often have more modern interfaces and streamlined remote access, meaning they do not feel the need to have physical branches. Some of these banks include Monzo, Starling and Tide.

If you prefer using apps and calling or messaging helplines, then these mobile apps may suit you best. If you would prefer to take physical documents into a branch and speak to someone, then a traditional bank with a branch may serve you better.

If you are a sole trader, it is usually much quicker and easier to set up a bank account as there is less information needed by the bank. If you are a limited company, it can take a while to set up the bank account.

Bank fees and money protection

High Street banks will charge around £5-8 a month for the running of a business account.

If the bank you use collapses, the FSCS scheme will protect your money up to the value of £85,000. If you had more than £85,000 in your account, you would lose this. 

An important thing to consider with this is if multiple banks share licenses, for example, HSBC and First Direct, the FSCS scheme would still only protect 85,000 across BOTH banks. You could have £100,000 in one bank, and £20,000 in the other and only £85,000 would be protected between the two.

All banks have that security because this is a UK bank rule necessary to be able to run the bank.

Larger banks will allow overdrafts and loans, whereas other smaller banks may not have the capacity for this yet.

Exchange rates & expenses

Mobile banks such as Starling, Revolut and tide often have a lot of benefits through the app, including fee-free spending for different currencies based on the Mastercard base rate, so that surprise exchange rates do not affect you. This base rate is usually a lot better than larger banks such as Santander who will have variable conversion and exchange rates.

Using Revolut, you can hold money in multiple currencies, which is an excellent feature if your business regularly buys and sells from other countries. For example, if you have a business relationship and trade with the USA, you can keep a ‘pot’ of money in USD. 

Monzo enables you to automatically take tax off and put it into a pot as well as set VAT rates and corporation tax to be offset into separate pots.

Often banks only allow Directors of the business to have business bank account cards. However, banks such as Revolut and Tide have employee expense cards that can have budgets on them rather than employees having to use their own money and claim it back at the end of each month.

Soldo is an excellent service for expenses cards for employees, being able to set and see budgets and spending categories in the app, again saving time and effort by getting rid of the claims processes.

So, in summary, which bank is best for you is simply that. You must decide which bank is best for you based on the factors that you prioritise for your business. You can use the below as a guide for your business.

If you are a small business, digitally focussed with little to no cash transactions, you may want to choose Starling Bank.

If you are a business that has multi-currency requirements, needs expense management cards for your employees and you don’t require lending, you may choose Revolut.

If you are looking to use bank lending or you require competitive cash deposit fees, and you also prefer to go into branches or to work with more established banks, we would usually recommend Barclays.