Which Businesses Must Have a Bank Account?
Some businesses, such as limited companies (ltd) and limited liability partnerships (LLP) are required by law to have a separate bank account from personal finances.
However, some businesses such as sole traders, non-ltd contractors and freelancers, are not required by law to separate their personal finances from the business and therefore do not need a business bank account.
Limited Companies (Ltd)
Limited companies, or Ltds, are legally obligated to use a separate bank account for business operations in the UK. This is because Ltds are considered separate legal entities from their owners due to the limited liability status of the firm (otherwise known as the corporate veil) and require their own financial records.
Limited Liability Partnership (LLP)
Similarly to Ltds, limited liability partnerships must also have a separate bank account from personal finances by law. LLPs are considered separate legal entities from their partners and require their own financial records.
Which Businesses do Not Need a Bank Account?
Sole traders are not legally required to have a dedicated business bank account as their business and personal finances are legally considered the same. However, many people do find them helpful as they maintain a clear distinction between personal and business finances.
Non-Limited Company Contractors
Non-limited company contractors are also not required by law to have a dedicated bank account for business operations. This is for the same reason as sole traders.
Non-Limited Company Freelancers
As with non-limited company contractors and sole traders, non-limited company freelancers also have a choice whether they use a business bank account. Again, this is due to the fact that their business and personal finances are considered as one.
What Our Experts Say…
Whether you are a Ltd, LLP, sole trader, contractor, or freelancer, you may want to consider having a separate bank account for business operations. This not only helps to keep track of business expenses and income, it also establishes a level of professionalism and legitimacy for the business.
If ever your company has the misfortune of running into cashflow problems and creditors, such as HMRC, require an investigation into the business’ income and expenditure, it will be far more manageable and less painful for them to investigate the financial standing of the business if the finances are kept separate from your personal bank account.
Some banks will also refuse to lend your business money if you are using a personal bank account. Some banks insist on you using a dedicated business bank account before they will part with their cash.
Please keep these things in mind when making your decision if you are a sole trader, contractor, or freelancer.
How to Open a Bank Account for Your Business?
The process of opening a bank account for your business is relatively straightforward. Business owners must provide basic information about the business, such as the business name, registration number (if applicable), and contact information. Additionally, proof of identity for authorised signatories on the account and an initial deposit will be required. Business owners can visit their chosen bank branch or apply online to open a business bank account.
What You Will Need to Open a Business Bank Account
To open a business bank account, business owners will need to provide:
- Business name and registration number;
- Contact information for the business;
- Proof of identity for authorised signatories on the account;
- Initial deposit to open the account.
When Should I Open a Bank Account for My Business?
Our experts recommend opening a bank account for your business as soon as possible, even during the early stages of starting a business. The reason for this is to start as you mean to go on, and whilst some businesses, such as sole traders, some contractors and freelancers, may not have to use a business bank account by law, it certainly helps to categorise and manage your business and personal finances in a more straightforward way.
In summary, UK businesses such as limited companies (Ltd) and limited liability partnerships (LLP) are required by law to have a separate bank account from personal finances to maintain financial records. However, sole traders, non-ltd contractors and freelancers are not required by law to have a separate business bank account.
Our Experts recommend that all businesses have a separate bank account for their business operations to keep track of expenses and income, establish professionalism and legitimacy, and avoid cashflow problems and creditors investigation.
Opening a business bank account is a straightforward process. We recommend opening one as soon as you start your journey as a business owner.