Editor | 25 October 2018
When do you need a business bank account?

When do you need a business bank account?

Having a business bank account has some benefits. It can help you look more professional and it’s a good way to keep your business finances separate from your personal finances.

But business bank accounts usually charge a monthly fee, plus extra charges on certain transactions. If you are a freelancer or another micro business, you might not want one unless it is absolutely necessary.

Limited company

If you are a limited company, you are legally obliged to have a dedicated business bank account.

No ifs, no buts. Your limited company is a separate legal entity, so you need to keep any business money away from your personal money. You may also need to pay tax on any money that you withdraw from the business.

Sole trader

In most circumstances, sole traders will be able to use a personal bank account for their business.

Using a personal account has the clear advantage that you won’t be charged for it.

If you are worried about mixing business money - such as money you need to pay taxes - with personal money, you can set up two personal accounts to keep the funds separate.

There are some circumstances when you may be required to get a business bank account.

If you look deep in the terms and conditions, many current account providers will prohibit you using the account for business purposes.

If the bank notices high numbers of transactions being processed through an account, they may threaten to close your account or force you to set up a business account.

You may also need to set up a business account if you want to process card transactions, take out a business loan or get a business credit card.

Getting the best out of a business bank account

There are plenty of good business bank accounts on the market. The best accounts offer free unlimited transactions for a year or 18 months and a range of other benefits.

Because different accounts charge differently, you will need to choose an account that suits you.

Most accounts charge a monthly fee. Many have a standard fee of around £7 or £8, but some are more expensive.

After this, banks will differ on fees per transaction. Some types of transaction will be cheaper than others, so make sure you and your staff are aware of all fees and behave accordingly.

In most cases, you will want to make sure that you are paid by BACS rather than cheque and limit the amount of cash that you pay into the account. You also want to avoid using unauthorised overdrafts and stick to online banking wherever possible.

Using software to track bank transactions

Cloud accounting software like Xero and FreeAgent can be connected to your business bank account to keep track of your business finances.

When you set up bank feeds from your bank account into the cloud software, your transactions are imported securely into the software each business day.

The software also allows you to reconcile bank transactions so you can keep an eye on what money is being used for.

For more information on bank accounts and cloud accounting software, speak to one of our experts today. Call: 0808 281 0303.