Through the hustle and bustle of running a small business, managing your finances can often feel overwhelming. Indeed, from tracking income and expenses to fulfilling your tax obligations, the financial details in entrepreneurship require careful attention. One service (among many) that could smoothen this process is a business bank account – but what exactly is a business bank account, and do you need one? Read on as we delve into the details!

What is a business bank account?

A business bank account is a bank account designed specifically for conducting business rather than for personal use. Although typically requiring a monthly or annual fee, they often offer a range of business-oriented benefits such as access to financial advisors, invoicing and payment systems, and compatibility with accounting software.

Who needs a business bank account?

If you run a limited company (i.e. registered with HMRC and incorporated by Companies House), then it is mandatory for you to hold and maintain a separate business account for your company: your business is a discrete entity which needs to track its finances independently from your personal income.

If you are self-employed (i.e. a sole trader), then you don’t need to hold a business bank account by law: you are trading as yourself, or under a trading name corresponding to yourself, so there is no distinction to be made between your self-employment income and other personal finances.

Please note, however, that some banks do not permit personal accounts to be used for trade – so always remember to check your terms and conditions! In any case, there can be benefits for switching over to a business bank account.

What are the benefits?

For a relatively small monthly fee, business bank accounts offer a range of advantages. Even as a sole trader, you might still benefit from setting up a business bank account. Although varying between individual banks and arrangements, typical advantages can include:

  • Business credit rating – a business account helps to separate your personal credit score from your business, helping to protect both you and your business from financial risk.
  • Business loans – a business bank account can set you in good stead for receiving business loans, and many business bank accounts allow for a tailor-made business overdraft or credit card.
  • Saving timeaccording to Barclays, sole traders in the UK spend 15 days a year separating business and personal finances. By directing all business through a designated account, this can offer significant time-saving benefits.
  • Tracking expenses – the clear delineation of business-related outgoings can help you when calculating potential tax (VAT) deductions and processing your tax obligations for HMRC.
  • Professional appearance – using a business bank account can give the impression of a more polished, professional service. Clients might be less enthusiastic to make payments into a personal account, instead regarding a business account as more trustworthy.
  • Access to business support – many high-street banks offer special services to business account holders, such as business advisors and access to online training.
  • Comprehensive banking services – since they are designed for businesses, business bank accounts often have provisions for simplifying bulk and international payments, as well as for organising payrolls.

How to open a business bank account

Setting up a business bank account in the UK is reasonably straightforward, although certain details pertaining to you and your business are typically required, including:

  • Personal identification – a copy of your passport or driving licence.
  • Proof of address – a personal bank statement and/or utility bill.
  • Business details – your company name (if applicable), business address, details of activity.


In conclusion, opening a business bank account is a necessary step for businesses registered as private limited companies in the UK. However, it can also prove a useful tool for self-employed sole traders wanting to streamline their business practices, allowing for a more professional system to keep better track of cashflow, organise VAT and Income Tax Self Assessment obligations, and to enjoy a number of business-oriented benefits.

Disclaimer: We aim to offer educational articles on our blog, focusing on tax-related topics. However, it's important to note that over time, the relevancy of this content might diminish, and we cannot guarantee accuracy. While these articles serve as a tool for enhancing tax knowledge, they are not a replacement for expert advice in accounting, taxation, or legal matters, given the unique nature of each individual's situation. Should you require personalized assistance, we encourage contacting HM Revenue and Customs (HMRC).