If you’re running a business, whether as a sole trader, part of a partnership, or leading a limited company, you might wonder if opening a business bank account is necessary.
The decision to open a business bank account hinges on the legal structure of your business and its financial complexity. Here’s a straightforward guide to help you determine if you need one.
>>If you want to choose an account, read our article on the Top Business Bank Accounts in the UK
Do I Legally Need a Business Bank Account in the UK?
Whether you need a business bank account depends on your business type.
Sole Traders
Contractors, freelancers and sole traders aren’t legally required to open a separate business account in the UK. This is because your business isn’t legally separate from your personal identity.
The only exception to this is if you’re acting as a contractor through a limited company. In this situation, you would fall under the obligations of limited companies and be required to open a separate business bank account.
However, even if not required, opening a business account may still be beneficial. Your personal bank account provider may also have policies prohibiting using their personal accounts for business purposes.
Limited Companies
All limited companies in the UK need to open a separate business account to manage their finances.
In contrast to sole traders, limited companies are considered separate legal entities, and your personal and business finances must be kept separate, even if you’re the sole proprietor.
Partnerships
The requirement to open a business bank account if you’re operating as a partnership is slightly more complicated.
Whilst limited partnerships (LPs) and limited liability partnerships (LLPs) are required to have a separate business account for the same reason as limited companies, general partnerships
Similar to sole traders, a general partnership isn’t considered to be a separate legal entity from its partners, so it doesn’t have to operate through a different bank account.
Charities & Community Groups
Depending on their structure, charities and community groups may not need to open a separate business bank account.
However, they may find that opening a specialist business bank account helps to ensure financial transparency.
Should I Open a Business Account?
Consider applying for a business account if:
- Your business is a limited company.
- You have a high annual turnover, making personal account management impractical.
- You have frequent transactions and want to simplify bookkeeping.
- You need to manage payroll.
- You want to apply for business loans or finance.
- You want to accept card payments.
You may not need a business account if:
- You’re a freelancer or sole trader.
- You have minimal financial activity and low revenue.
- Your busy is very small, or you’re a hobbyist with limited activities.
- You are not registered and don’t have a formal structure requiring a separate bank account.
- You don’t plan to scale your business.
Can You Use a Personal Account for Your Business?
Depending on the nature of your business and financial provider, you may be able to use a personal account for your business. However, it’s not generally recommended.
Many banks have policies that prohibit using personal accounts for business purposes. If the bank discovers this, they might close your account.
Instead of using an account designed for personal transactions, there are plenty of business accounts to choose from, including fee-free options.
Pros & Cons of Keeping Business and Personal Finances Separate
Pros:
- Simplifies tracking income and expenses so you can prepare accurate financial statements.
- Ensures compliance with tax regulations, minimising the risk of audits and penalties.
- Projects a professional image to clients, suppliers and partners, which helps to build credibility.
- Protects personal assets from business liabilities for incorporated companies.
- Many business accounts come with additional features like invoicing and payment links which help to improve efficiency.
- Gives you access to specialised banking services like business loans, credit cards and merchant services unavailable with personal accounts.
- Helps to establish and improve your business credit history.
Cons:
- Business accounts can have higher fees than personal accounts, including maintenance and transaction fees.
- Some accounts require maintaining a higher minimum balance.
- Applying and setting up your business account can take longer, with additional verification required.
- Requires maintaining separate records and accounts which may be more time-consuming.
FAQS
Do I Need a Business Bank Account For Shopify?
No, you can use a personal bank account that complies with your country’s Shopify Payments requirements. For UK this means that it is a full current account with a bank in the UK, is in GBP currency and is eligible for Faster Payment System transfers.
Can I Use My Personal Bank Account If I’m Self-Employed?
Yes, you can use your personal bank account if you’re self-employed, but it’s not recommended. Mixing personal and business finances can complicate bookkeeping and tax reporting. Many banks may also prohibit using personal bank accounts for business purposes.
Do I Need a Business Bank Account to Get a Business Credit Card?
Yes, typically, you need a business bank account to successfully apply for a business credit card. Bank and credit card issuers require a business account to verify your business’s financial activity and creditworthiness.
What Happens If You Don’t Have a Business Account?
Running a business without a business account can have multiple implications, including financial confusion, making it difficult to track your expenses and increasing the risk of errors in tax reporting and potential audits. You may also struggle to access business-specific banking services like merchant services, business credit cards or loans.
Do I Need a Business Account for My Side Hustle?
Whether you need a business account for your side hustle depends on its structure. Although sole traders and freelancers don’t legally need a business account, having one will simplify managing your accounts and tax preparation.
Can I Use a Savings Account as a Business Account?
No, most financial service providers will prohibit using savings accounts for everyday transactions. Savings accounts are typically not designed for frequent transactions and may have limitations on the number of withdrawals and deposits. They also lack business-specific features like cheque-writing, merchant services, and the ability to handle business expenses effectively.
