Having a business bank account is important for several reasons, and for some businesses it is a legal requirement.
Where it’s not a requirement, it can help to make tax returns easier and it can smooth the process of claiming back business expenses. It’s also good practice to separate your personal and professional finances, so that the lines between business and private expenses don’t become blurred.
Business accounts offer entrepreneurs practical benefits such as good interest rates, access to overdraft facilities and financing options such as loans and credit arrangements, as well as business insurance.
There are a range of accounts available to suit business of different sizes, from start-ups and charities to larger organisations.
Do I need a business bank account?
Depending on the structure of your business, a business banking account may be a requirement rather than an option.
If you operate as a sole trader, there is no legal requirement for you to open a business bank account. You can operate your business finances from your personal account, though you may struggle to distinguish between your personal finances and the income from your business.
If your business is a PLC, you will need to open a business bank account. This is because PLCs are legally and financially separate entities from the directors and shareholders that run the company.
The main difference between personal and business banking is that you will be paying a monthly fee for the bank’s services. There are also fees for a range of daily transactions, including cash withdrawals, cheque payments, and so on.
These rates can add up and may begin to bite at your cashflow, which is why many sole traders decide against a business account and operate from a personal account.
However, whether you are under legal obligation to use a business bank account or not, having one makes it easier to see your taxable income and to comply with HMRC best practice.
So where to start?
When it comes to choosing an account, high-street banks often offer favourable terms for businesses. These usually include fee-free banking for a set period (usually 12-18 months), as well as tariff-free overdraft facilities.
As is the case for personal banking, business bank accounts come with internet, mobile, telephone and in-branch banking as standard. This gives you the flexibility to manage your finances at any time or place.
It’s also worth considering that you may need a separate merchant account if you’re considering accepting card payments. For security purposes, card payments are held in these accounts before being moved across to your business account.
The process of setting up a merchant account varies by provider; a bank will be able to offer your additional advice on this issue.
Finally, get into the consumer mindset. You’d shop around for your utilities providers to get the best deal – do the same when choosing a bank account.
Your bank is providing a service which should work in your favour while safeguarding your finances. Be sure to compare the offerings from the high-street banks and see which ones offer the best deal.
Your bank should be offering you competitive terms to keep you as a customer – if they stop doing that, consider switching to a different provider.