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Opening a business bank account can make you feel like you have truly launched your venture. In this article, we explain everything you need to know about taking this momentous step in starting your own small business.

Do I need a business bank account?

It depends on your business structure. For example, a private limited company or one limited by guarantee must have its own bank account as it is a separate legal entity. There is no legal requirement for a sole trader to open a different business bank account. However, there are several advantages to doing so.

What are the advantages of having a separate business bank account?

  • It’s easier to register for VAT. If you are not VAT registered you will have to pay the VAT on your purchases and will be unable to reclaim it
  • One bank account for personal and business will result in chaotic finances. Having a separate account for your business will make keeping track of payments and expenses more manageable
  • Keeping business and personal payments separate will simplify your tax management. HMRC’s default position is that any payments from a bank account with mixed business and personal use are assumed to be personal in nature. This means they are, therefore are, not tax-deductible business expenses. 

How do I open a business bank account?

Most business accounts are opened online, which means you need to do your research beforehand. Questions to consider include the fees applicable to the account and whether you need access to a business overdraft facility. If unsure about your options, you can make an appointment at the bank’s branch to speak to an advisor.

What documents are required to open a business bank account?

You will need the following information to hand:

  • Your company registration number (if applicable)
  • Your business address and all its contact details
  • Approximate annual turnover
  • The names and contact details of all directors
  • Proof of identity

Does a sole trader need a business bank account?

As a sole trader, you’re not legally required to have a business bank account. The law allows you to use your personal account for business finances and non-business transactions. Also, you can set up a second personal bank account for your business.

However, your bank’s terms and conditions may prohibit you from using a personal account for business transactions. 

Does a limited company need a business bank account?

A limited company needs to have its own business bank account as it is a separate legal entity. Limited companies shouldn’t be using a personal account for any business expenses.

Do I need a business bank account for a partnership

If your business is a general partnership and operating as a sole trader or freelancer, then you are not legally required to set up a business account.

However, if your business is either a limited partnership (LP) or a limited liability partnership (LLP), you must set up a business bank account. This is because they are legally separate entities and must be managed as such.

Can a business have multiple bank accounts?

Although having a business bank account is necessary, opening multiple accounts can be an advantage for your business.

Opening an extra bank account can be an advantage for your business. You can use the second bank account to track your expenses easily. Invoices, taxes, and payroll are the major expenses of a business. 

When your business is working well, and there's money in your account, you can assume what you bring in is ultimately yours. However, this is not always entirely true - as you will still need to cover expenses. A second business bank account can help you with that. 

When you receive service payments, set aside a percentage of the income into your second business account. This can help you maintain cash flow within your business. It will also set you high up the ladder among companies with healthy financial habits.

Get legal assistance from LawBite

LawBite has experience helping startups and small businesses achieve their commercial ambitions and regulatory compliance. To find out how we can support you get your business up and running, book a free 15 minute consultation or call us on 020 3808 8314.


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In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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