Five million UK citizens are now self-employed, freelancers, contract workers, or otherwise involved in the gig economy, whether it’s their primary employment or a side hustle.
Even though most individuals can use their normal bank account, there are instances when you’ll need to use a business account, or it’s much simpler to keep your personal cash separate.
For a business, selecting a suitable bank account is a major decision. But choosing the right account can be a challenging task with so many players in the industry. In this blog, we will guide you on how to select the best start up business bank account.
Table of contents
● What is a startup business bank account?
● Do you need business bank accounts for startups?
● What should you look for in a startup business bank account?
● What do I need to open a startup business account?
● Final thoughts
What is a startup business bank account?
It is a type of bank account created for a new business different from your personal bank account.
You can make withdrawals and deposits, buy services or goods using a debit card, and sometimes access an overdraft, similar to a current personal account.
But a business account generally charges fees and transaction expenses, offering extra services and tools useful for startups, such as online accounting and business support.
You can start a business account with a high street bank or through challenger banks that operate online and app-based platforms that provide current business accounts.
The best business bank accounts for startups
Here are the best business bank accounts:
● Wise
● Revolut Business
● Metro Bank
● Tide
● Starling Bank
● Yorkshire Bank
● Cashplus Business
● Kinetic
● Anna
● Mettle
● Bank of Scotland
● Anna
Do you need business bank accounts for startups?
Whether you should have a business bank account depends on your business and how you like handling your personal funds.
Sole trader
If you are self-employed, a freelancer, or a contractor, you can choose whether you want to open and use a business account. Even so, you might wish to have one so that your personal and professional finances are kept separate.
You can then more easily track your cash flow and examine your company’s profits and expenses. Also, this will make it simpler for you to complete your tax return.
Separating your business and personal affairs early on can be helpful as your business grows. Additionally, if you manage your company’s credit properly, you may be better positioned to obtain a business credit card or business loan card.
Also, having a business account will be helpful if you decide to work with an accountant or tax advisor to handle your funds or if HMRC needs to conduct an inspection, as your personal transactions will be kept separate.
Furthermore, if you are billing clients, it could make you look more professional if payments are made to the firm name rather than your name.
If you want to use a personal account for business transactions, maybe since you occasionally do contracting or freelancing work, then you should check the account terms and conditions. Some banks won’t allow you to use personal accounts for business transactions, and if your account shows many business-related activities, your services may be suspended, and your account might be closed.
Limited company
If your new business is a limited liability partnership (LLP) or a limited company, you must have a separate business account even if you are the only staff.
Only business income should be deposited into that account, which can also be used to cover expenses and pay salaries.
Your business finances must be kept separate from your personal finance, as it is a distinct legal entity. It is simple to demonstrate this separation using a company bank account.
What should you look for in a startup business bank account?
Many factors go into selecting a business bank account, and the ones you want to focus on will rely on the type of business you run. You may have small monthly profit margins or require further tax assistance.
While there is no one-size-fits-all solution, the following factors should be taken into account when choosing your UK online business bank account:
1. Fees
Business bank accounts generally charge a monthly payment which can differ significantly.
Many also charge fees for particular services, including ATM withdrawals, deposits, cash advances, and services involving foreign currencies.
Be sure to consider which of these your startup will use the most frequently and choose an account that offers the best rate.
2. Look for introductory deals
Many banks provide introductory deals, such as three months or even a year of free banking. A new business just starting can benefit from this initial phase.
3. Specific requirements
Your startup’s needs will differ from others, so what will you need to launch your business? If it’s an overdraft, ensure you find an account that provides that. Or it can involve interaction with in-app invoicing, accounting software, foreign exchange services, etc.
4. Protection
Knowing that your money is safe for any business gives them peace of mind. Additionally, for UK-licensed banks, the FCSC automatically compensates each qualified firm depositor up to £85,000. But be aware that many business accounts don’t qualify because they operate under an electronic or e-money licence.
What do I need to open a startup business account?
To open a startup business bank account, you will need the appropriate papers, plus more precise requirements for various institutions that need credit checks. Typically, those things are:
● Proof of identification, like a driver’s licence or passport
● Providing evidence of your current address with a recent utility bill or bank statement
● Companies House Registration Document if opening an account for a limited company
● Business plans
● Director’s personal information, like name, birth date, address, and National Insurance number
Final thoughts
Startup owners typically overlook choosing which startup business account to create since they have an endless list of tasks to complete.
You can use a startup bank account for all the typical business operations, including paying invoices and checking statements.
However, you can also get support and tools for your business that will save you time, such as integrated bookkeeping and direct invoicing.
