Accountancy

Everything you need to know about bank business accounts for small businesses

When you first set up a new business the easiest option is to set up a business bank account at the bank where you hold your personal account. After all, you’ve been happy with them managing your personal finances, so why wouldn’t you want to open a business bank account with them? While that may be true, like anything in business, it pays to do a little bit of research to make sure you get an account to suit your business needs both today and tomorrow.

We take a look at all the things you should consider before choosing a business bank account.

Do you need a business bank account?

If you have a limited company, then legally it’s considered to be a separate entity, so you have to have a dedicated business current account. This enables you to handle all your business finances separately from your personal current account.

If you are a sole trader or part of a partnership it isn’t compulsory for you to sign up for a business bank account; however we would recommend you seriously consider keeping your business and personal finances separate. This not only makes it easier to notify HMRC about your business income, but also enables you to easily keep track of your business income and expenses, which when it comes to submitting your self-assessment will make both you and your tax accountant very happy!

Also, with a business bank account you will easily be able to:

  • Receive debit card and credit card payments
  • Carry out credit checks on businesses and suppliers
  • Process salary payments
  • Carry out transactions using foreign currencies

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7 things to consider when choosing a business bank account

With so many business accounts to choose from it can be hard to know where to start. Here are the main things you need to consider.

  • Does the bank have any branches? If you know you’ll be making a lot of cash deposits, then choosing a bank with a branch near you, would be a sensible option.
  • Are there any account fees? A lot of business accounts charge a quarterly or monthly fee for banking with them.
  • Are there any transaction charges? These charges are for the handling of money moving in and out of your account and will usually include paying in cash, making cheque payments, direct debits and standing orders.
  • Do they provide online banking? Most banks will provide internet banking, but there are a few exceptions, so make sure you check if this is important to you.
  • Is there an overdraft facility? If you think you might need this to help with cash flow, then make sure you check any terms and conditions.
  • Do they offer any additional services? Some business accounts include services such as budgeting tools, account management and integration with accounting software.
  • Do they offer direct bank feeds? Double-check that your bank has the ability to integrate with your cloud accounting software. Some don’t which makes it a lot harder when it comes to preparing your annual accounts and tax returns!

If you’re not sure which account is right for you, we are more than happy to help. As an Aylesbury accountant we work with companies of all sizes to help grow their business so have experience of finding the right bank account for the right business.

Should you choose a high street or a challenger bank?

In the old days, your choice would have been limited to banks, such as HSBC, Yorkshire Bank or Co-Operative Bank, but nowadays the choice is much greater. In fact, you can even access a lot of bank accounts from your local Post Office!

Challenger banks, such as Monzo, Starling and Tide are capitalising on the trend of people using their phones to do their banking, so are focusing on digital technology and an excellent online experience to attract new customers. Some challenger banks, such as Metro Bank still have a high-street presence, but many are entirely digital.

Both high street banks and challenger banks are authorised and regulated by the financial conduct authority, so you won’t have to worry about your money being safe. But carefully consider the pros and cons of each and how you work as a business before committing to a provider.

How long does it take to set up a business account?

The bank will need to carry out a number of checks to confirm your identity and those of any other directors registered with your business. This usually takes anything from 1 week to 4 weeks. However, it may be a bit quicker if you already have a current account with the bank or are a sole trader rather than a limited company.

What do I need to open a business account?

To open a business account, you’ll be need to provide the following documentation:

  • Proof of identification such as a passport or driver’s licence for all company directors
  • Proof of address such as a bank statement or utility bill
  • Your business details, including the registered address and contact details of your business. For limited companies and partnerships you will also need to provide your Companies House registration
  • Your expected annual turnover.

Get help setting up Business Accounts For Small Businesses

As a local accountant we’ve helped many small businesses set up a business bank account, so if you need any advice or assistance, please get in touch. We’ll be delighted to help.