A guide to business banking - setting up a business bank account

Getting the right bank account for your new business is important but ,with so many different offers and packages available, it could be bewildering to know where to start.

As your business grows, keeping your finances organised and separate from your personal money becomes increasingly important.

A dedicated business bank account is one of the best ways to do this, but how do you choose the right one?

Read on to find out what’s involved in setting up a business bank account.

What is a business bank account?

A business bank account is simply a bank account for your work money.

It works just like your personal bank account, but it’s only for your business.

You can use it to get paid by customers, pay employees, and buy things for your business.

It helps keep your business money separate from your personal finances.

Business accounts often offer extra features that personal accounts don’t, like being able to take card payments from customers or borrow money for your business more easily.

Read about sole trader bank accounts.

Do I need to open a business bank account?

If you run a limited company or partnership, a business bank account is effectively required, as mixing personal and business finances can breach legal, tax and accounting standards.

If you work for yourself as a sole trader, you don’t need to have one, but it can make life easier when you do your taxes because your business money isn’t mixed up with your personal money.

As a sole trader, HMRC treats your personal and business affairs as one, but most banks prefer two separate accounts, especially if a large number of transactions come through your company.

The benefit of retaining a personal bank account for business is that you will not have to pay any fees to set it up, or, more likely, a monthly account fee.

Transaction charges are standard for business accounts, but the amount and what is charged for vary by bank and account type.

Retaining your personal account could help you save on charges.

The benefits of a business bank account

Having a business bank account can offer several advantages to small businesses and start-ups:

• keeps things organised – having a separate account means your work money doesn’t get mixed up with your personal money, which makes it much easier to do your taxes and keep track of business spending
• looks professional – having a business account with an authentic address of the business on any correspondence may appear more professional and help build customer trust
• makes borrowing easier – banks are often more likely to lend you money for your business if you have a proper business account, as they can see how your business is doing by looking at your financial history
• access to business services – you could gain access to useful extras, such as business loans or credit lines, to support growth
  Read: Comparing a Business Loan and a Start Up Loan for a new business.
• better cash flow management – it could provide tools for better cash flow management, such as account statements and online banking features
• helps make tax simpler – with all business transactions in one place, it can be easier to work out your tax bill, spot expenses you can claim, and keep proper records in case the tax office asks questions
• legal protection – separating personal and business finances helps protect your personal assets and shows you are running your business properly.

Read our guide to small business bookkeeping tips for success.

What should I consider when setting up a business bank account?

Firstly, consider shopping around.

There could be a temptation to stay with your present personal bank and let them set up an account for you.

However, that may not be the best idea, as business banking packages can vary enormously.

Make sure you’ve read the terms and conditions and are aware of any fees before applying.

Take time to research first — it’s much easier than dealing with the hassle and fees that come with switching accounts after you discover you’ve made the wrong choice.

The aspects you could look at and compare include the following:

Fees for withdrawals

Some banks allow free day-to-day transactions for a period, such as the first year or two.

These offers may also include free payment around cheques (paying in and issuing), and free set-up of standing orders and direct debits.

If you secure one of these accounts, tracking how much you would have spent on charges for your own records may be wise.

This way, the total amount will not be a nasty surprise when you need to pay your fees.

Minimum deposits

Many business accounts require a minimal deposit to open an account.

You may need to deposit as little as £1, though some accounts may require larger amounts depending on the provider and account type.

This initial deposit is often necessary to activate the account’s features and benefits.

Business bank account overdrafts

While using an overdraft isn’t ideal, it may be essential in the early stages of a business, when unseen circumstances arise, or during cash flow challenges.

Banks typically charge for overdrafts through interest on the overdrawn amount and may also have additional fees for unarranged overdrafts or returned payments.

Interest rates typically range from 10% to 20% AER (Annual Effective Rate) or may be higher.

If you don’t have a pre-arranged overdraft, you can expect to pay more, so setting one up in advance could be beneficial.

Banks often charge an annual fee, usually a small percentage of the overdraft limit.

Bear in mind that these interest rates generally follow the Bank of England’s base rate, so if that goes up expect the bank’s interest rate to follow swiftly.

Online banking

Most banks allow instant access to your accounts from anywhere in the world.

The quality of online banking platforms varies, but user-friendly apps and websites help business owners manage their accounts efficiently.

Some of the features that you might want to look for in a business bank account include:

• quick set-up of direct debit, standing orders, and bill payments
• strong security measures such as PINsentry, biometric login, and two-factor authentication
• integration with cloud accounting apps and online document storage
• online banking guarantees and daily customer support
• mobile app access and mobile cheque deposits
• payment tools and invoicing features
• real-time transaction alerts, warnings, and text notifications
• instant loan and overdraft applications
• multi-currency accounts and international payments
• insight technology to track spending, cash flow trends, and potential areas for improvement.

Earn interest

If you have spare money in your business, you could earn better interest by putting it in a business savings account.

These accounts typically offer around 1% interest at the least, but many now offer 4% or more, especially for notice or fixed-term accounts.

A business savings account can be helpful if you set aside money for tax bills, as you can earn interest while you wait to pay your taxes.

Your money is pretty safe, too.

If your bank goes bust, the government will protect up to £85,000 of your savings through the Financial Services Compensation Scheme (FSCS).

There is a proposal to raise this amount to £110,000 from December 2025.

Setting up a business bank account

Finding the right business bank account could take some time, but doing comprehensive research is worthwhile.

Consider using comparison sites, as they could simplify the process by handling much of the initial work.

Once you’ve found the best account option for your start-up, you could set it up online, by phone, or in a branch.

You will need to provide several documents and details, such as names, personal and business addresses, bank statements, current bank details, your company number, and business start date.

Banks will consider several criteria, including credit score, credit history, turnover, and financial details.

When opening a business bank account, banks may offer additional services like access to knowledge centres and business advisers.

However, be cautious about accepting all offers, as they may incur additional costs.

Some banks also offer loans to help your business start up.

However, any loan you consider should be a good fit for your business needs.

Borrowing advice for SMEs and small businesses.

What do I need to open a business bank account?

You will require various documents and details to open a business bank account, including:

Proof of identity

All company directors and account signatories must provide a valid form of identification, such as a passport or driving licence.

Proof of address

Documents like a recent utility bill, bank statement, or council tax statement (usually dated within the last three months) are also required to verify the addresses of company directors and account signatories.

Business details

Be prepared to provide the official company name, registered address and Companies House registration number if applicable.

Sole traders may need to provide details such as their trading name and the nature of the business.

Memorandum and Articles of Association

These documents show how the limited company is structured and operates.

The Memorandum of Association confirms that the subscribers wish to form a company and have agreed to become members and in the case of a company that has a share capital, to take at least one share each in the company.

The Articles of Association are written rules explaining how the company is run.

Partnership agreement (if applicable)

For partnerships, a copy of the partnership agreement outlining each partner’s roles and responsibilities may be needed.

Financial information

Banks often require information about your business’s financial status, such as recent accounts, projections, or a business plan, especially for new companies or start-ups.

Download our free business plan template.

How long does it take to get a business bank account?

The time it takes depends on which bank you choose and what type of business you run.

Digital banks (like Starling or Tide):

• can be as quick as 10 minutes
• often approved on the same day
• you can usually start using a digital card right away.

Traditional banks (like Barclays, HSBC, NatWest):

• usually takes 1-2 weeks
• might need a branch visit
• could take longer if they need more information.

Being well-prepared with all necessary documentation helps speed up the process and minimises any delays.

Other factors that may delay your application’s approval include a complicated business structure, a poor credit history, and the need for extra legal checks.

Switching business bank accounts

As your business grows, consider switching business bank accounts to access better services or reduce fees.

Try these tips if you’re considering changing your business account:

• assess your needs – identify key features like lower fees or better interest rates that your business requires
• research your options – compare banks to find an account that meets your needs, noting any introductory offers
• prepare documents – have your business financial information and ID ready for the new bank
• consider switching services – many banks offer services to transfer direct debits and balances, usually within 7-10 working days
• close your old account – once the switch is complete, consider closing the old account to avoid extra fees.