2024 promises to be a landmark year in banking and finance, thanks to significant changes and development including the rise of AI. But don’t worry! It’s still straightforward to set up a business bank account in the UK. The implementation of AI is actually a good thing, as it should lead to a much smoother customer experience, with faster response times and more intuitive interfaces. But with so many options for business bank accounts available, how do you know which is the best business bank account to choose?
We recently partnered with HSBC to deliver a workshop on how business finance works, uncovering the best business bank account for startups, small business owners and larger companies who are ready to expand. We’ve poured everything we learned into this handy guide. So read on to discover what you need to set up a business bank account in the UK in 2024, and where you can get a business bank account free of charge.
What’s business banking?
Simply put, business banking is a set of financial services designed for businesses. It includes business accounts, loans, credit cards, online banking, and more – everything you need to effectively and efficiently manage your business finances. But if you’re a small business that’s just getting started, you may be wondering…
Why do I need to set up a business bank account?
Well, there are a number of benefits to opening a business bank account. Here’s what you need to keep in mind:
1. It’s a requirement for limited companies in the UK
In the UK, all limited companies need to be registered with Companies House. In this case, your business is legally separate from you, so you shouldn’t be using a personal account for its expenses. You don’t really need a business bank account if you’re a sole trader or freelancer, or if you’re doing gig work.
2. Useful separation of personal and business finances
Opening a business bank account keeps your personal and business finances separate, making it easier to track income and expenses. And you’ll be really glad when you sit down to do your tax return! It will be simple to see exactly what you’ve spent through your business, which is ideal for declaring your income and keeping track of your finances.
3. Protection for your personal finances
Keeping your business finances separate from your personal finances will also help to reinforce limited liability protection. You can be sure that any money that leaves your business account belongs to your business, meaning that your personal savings will remain untouched.
4. A professional image for your business
A huge advantage of opening a business bank account is that it gives your business a really professional image. Transactions are in your business’s name, not your personal name – and this really helps to give your clients confidence that your business is trustworthy
5. Access to Business Services
Business accounts offer services tailored to company needs, including merchant services, payroll, and business loans. And while your business may not currently be at the stage where you need these services, it’s a good idea to open an account that will give you access to them in the future. It’s much easier to open the right account straight away, than try to switch later!
6. Ideal for credit building
Another reason it’s a good idea to open a bank account that you can use as your business grows is that it will help you build a really good credit rating. If you think you might be interested in applying for a loan for your business in the future, you’re going to need a credit history. So choose a card you can use for years and start building your credit history now!
What do I need to set up a business bank account?
Exactly what you need to open a business bank account depends on which provider you choose. But while they’ll all have slightly different requirements, this list will give you a good idea of the information you need to gather.
Proof of identification
Every director in your company – or trustee, if your business is a charity – will need to provide proof of identification. You can generally use your passport or your driver’s licence.
Proof of address
You’ll need to use a piece of paperwork that proves your address, such as a bank statement or a utility bill.
Your business details
This will include the registered address and contact details of your business. If your business is a limited company or partnership, you’ll also need your Companies House registration details. Some lenders also ask for proof of a clean credit banking history, and you may also need to provide your business’s expected annual turnover.
And if your business is a charity…
While it’s not an absolute requirement to have a bank account when establishing a charity, it’s important to note that the Charity Commission typically asks for proof of income during the registration process. This proof is often provided through a bank statement.
In most cases, it’s a good idea to have a bank account in place before you register with the Charity Commission. However, some banks might request that you have a constitution first. In this catch-22 situation, you can use the Charity Commission’s model constitution for small charities as a temporary solution. But please keep in mind that this temporary constitution cannot be used for the official registration with the Charity Commission.
So, to make the registration process smoother, consider setting up a bank account early, and you can use the Charity Commission’s model constitution temporarily while you work through the paperwork.
Which business bank account is best?
In the UK there are tons of options for business banking accounts. Here are some factors to consider when choosing a business bank account for your new business.
1. Standing charges
Bear in mind that some business accounts in the UK charge a monthly or quarterly fee for their services. That means that you pay the bank a small amount to manage your account. It might be tempting to just plump for the cheapest, but it’s a good idea to see this as a long-term investment. Choose a business bank account that suits your needs and gives your business room to grow.
2. Transaction charges
Alongside standing charges, some banks also apply a fee to money movements in and out of your account. This includes physical transactions such as cash deposits and cheque payments, as well as automated payments such as direct debits and standing orders. So it’s worth paying close attention to the small print to make sure this doesn’t push a certain account out of your budget!
3. Internet banking
Most business accounts do tend to offer online banking, but it’s worth double checking just to make sure that all your online banking needs are covered.
4. Interest rates
Choosing a business bank account with higher interest rates is a really smart way to make your money work for you – especially if you anticipate having a fair amount of cash in your account at any one time.
5. Introductory offers
It’s a good idea to keep an eye out for business bank account offers. Providers may entice you with short-term rewards such as competitive interest rates or free banking for the first year. This can be a great way to boost your cash flow in the early stages of running your business!
6. Branch access
These days, some business accounts don’t have physical branches. So if you’re a person who’d like to be able to go into a physical bank branch, it’s a good idea to bear that in mind!
Top 5 business bank accounts in the UK in 2024
1. Revolut Pro
Revolut Pro is a free business checking account made specifically for digital nomads, freelancers, and content producers. You can get 1.2% cashback on card spending. It comes without monthly fees on the Standard Pro plan, and you can easily manage your finances with the Revolut financial super-app.
2. Tide
Tide‘s corporate bank account stands out in the market because it doesn’t require a monthly or yearly membership fee, making it an attractive option for many businesses. However, it’s important to note that Tide does charge fees for certain transactions. This unique approach can be beneficial for businesses looking to minimise their banking costs while still enjoying the convenience of a dedicated corporate account. Keep in mind that understanding these transaction fees and how they align with your business’s needs is essential for making an informed decision.
3. Monzo Lite Business Account
The Monzo business account is available to sole traders, or the director of a registered limited company by shares (ltd), as long as they’re based in the UK. There’s no monthly account maintenance fee, and there are no UK card purchase fees, either. So it’s a great option if you’re just starting out! And the great news is that your Monzo Business Account can grow with you as your business really starts to take off. When you’re ready, and you’ve got the cashflow to cover the £5 monthly fee, you can switch to a Monzo Pro Business Account and unlock all sorts of extra features.
4. Lloyds Bank
Lloyds Bank is a really popular option for new businesses. Lloyds Bank provides a free basic business checking account with online banking services. To be eligible for this account, you should fall into one of these categories: a single proprietor, a partner in a business, or a director of a corporation. This account can be a great starting point for your business journey, offering essential banking services without the burden of fees. It’s a supportive step towards managing your business finances effectively.
5. RBS Start Up Business Account
If your business has been trading for less than one year and has a projected or existing annual turnover of less than £1m, the Royal Bank of Scotland Start Up Business Account is a great option. You’ll get free UK bank transfers and card purchases for 24 months, with no monthly fees. You can enjoy 24/7 messaging support, plus the option to give us a call or stop by your local branch, and multi-director access so eligible directors can have full visibility of accounts and spending.
Frequently asked questions (FAQs)
Can I open a business bank account online?
It’s perfectly possible to open a business bank account online. For example, you can set up HSBC’s Kinetic account online, and then manage it on their app. So it’s a virtual bank account from start to finish! This is a great option if you’re looking for a business bank account for startups, and it’s also a suitable business bank account for sole trader individuals.
Can I open a same day business bank account?
One question we get all the time is ‘how fast can I open a business bank account?’ The good news is that it’s easy to open a business bank account these days. For example, you can open a business account with Monzo in one day (though bear in mind that they don’t offer accounts for charities!). This is a business bank account you apply for online, so it’s super quick and easy.
Even if your chosen bank doesn’t offer same-day business bank accounts, there are a few things that can speed up the process. If you’re already registered at the bank with a regular current account, or if you’re a sole trader as opposed to an incorporated company, chances are your application will be turned around a lot quicker.
Can I open a business bank account with no credit check?
Yes, it is possible to open a business bank account with no credit check. If you’ve got bad credit, it’s still possible for you to be a kick-ass entrepreneur! There are just a few things to be aware of, though.
Unlike standard current accounts, business accounts designed for individuals with bad credit typically do not include an overdraft feature. This means you won’t be able to spend more than the available balance in your account, which can help you manage your finances more responsibly.
Also, business accounts for individuals with bad credit usually do not offer interest on positive balances in your account. While you won’t earn money from your account balance, these accounts are designed to provide essential banking services, even if your credit history isn’t perfect.
My business bank account application was rejected. What should I do?
If you’ve encountered a business bank account application rejection, there are several factors to consider. It’s important to keep in mind that each bank or building society has its own unique criteria and guidelines. Your application might face challenges if your industry is considered high risk, if you have a less-than-ideal credit history for either your personal or business finances, or if your company is registered in a particular location. Furthermore, if some of your directors are based overseas, this could also impact the outcome.
The good news is that just because one institution declined your application doesn’t mean you won’t find alternatives. It’s often worth exploring different financial institutions, as they may have more suitable account options based on your specific circumstances. Seeking advice from financial experts or business mentors can be particularly valuable during this process. Persistence and a bit of flexibility can lead you to a successful business banking solution!
Are business bank accounts free?
Some are, yes! For example, Starling Bank allows you to apply for a free digital business account easily within their app. And Revolut has been named the best overall free small business account by Compare Banks. It’s worth noting that even if the account is free to set up, there might still be charges on certain transactions. So make sure you read the small print!
Consider using a virtual office address
A business bank account is a really good way to manage your company’s finances, and to give your business a really professional image. And if you’re looking to boost your brand even further, consider using a Virtual Office provider to get a professional address for your company!
When you sign up to Impact Brixton’s Virtual Office, you can use our impressive address in the heart of Brixton Village as your official company address. That means that the first thing people will see when they look your company up is an impressive postcode in a renowned hub for small businesses. And you don’t have to put your home address online at Companies House for everyone to see! You can get a Virtual Office package at Impact Brixton from just 0.41p per day. Check out the options now!
Conclusion
Setting up a business bank account is a fundamental step for any start-up or small business in the UK. It not only helps you manage your finances effectively but also enhances your professional image. Whether you’re looking for an account that offers no monthly fees for a certain period or prefer one that provides robust online banking features, there’s a perfect fit for your business. So, take the time to research and make an informed decision as you set up your business bank account in the UK. Good luck on your business journey!
