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Small business bank accounts: All you need to know – Paymentsense

7 December 2017 Small Business Advice

Whether you’re starting a business as a Ltd company or working as a sole trader, you’ll need to understand business bank accounts, what they offer and how they can help you to run a better, smoother operation in the long run.

What is a business bank account?

A business bank account is an account offered to those who are self-employed or run their own business. In a lot of ways, a business account is a lot like a personal account, but instead of holding your personal earnings, it holds the earnings from your business or self-employment. There are a wide range of banks, both big and small, that offer business accounts as part of their core services.

Do I need a business bank account?

Whether you need one or not really depends on how you want to do things. If you have registered a Ltd company in the UK, that company becomes its own legal entity and requires a bank account to send or receive funds. You will not be able to accept business-related payments to your personal account.

If you’re a sole trader, you will need to be registered as self employed. If this is the case, you can use your personal account to receive work-related payments but may still want to set up a business account to take advantage of the benefits.

What are the benefits of a business account?

A business bank account has many benefits. Here are some of them.

Keeping your money safe

Business accounts, like all bank accounts, keep your money safe. Your funds are insured against theft and only you (or authorised persons) can access it. Much better than stuffing your earnings inside your mattress!

Managing your money

Business accounts are ideal for managing your money (or in business terms your “cashflow”). You can send/receive payments, pay bills, see your savings (or “liquidity”) and make clearer assessments of your income and expenditures.

Paying tax

As stated above, you can more easily pay your bills with a business account, and tax is one of the most important ones. The key to staying in business is effective tax management and with an account for your business you can more accurately record your income, and therefore the amount of tax you’re due to pay.

Applying for credit

Once you’ve set up an account for your business your regular payments in and out will start to build trust with the bank. They will start to see your company as a reliable entity and be willing to loan you money if/when you want to expand your business in a new direction.


Like a personal savings account, you can also open a business savings account where you earn a higher rate of interest. This is another great advantage of money in the bank versus outside of it. It means that your money is effectively earning you more money just by sitting in your account. Sounds sweet doesn’t it?


With your business bank account set up, it’s easier to claiming tax back on your business expenses. This can save your business money in the long run, helping you to generate more profit. Read our Ultimate Guide to Business Expenses to find out what expenses are, how they help, the best way to manage your expenses that save you money.

Of course, we’d be doing you a disservice if we didn’t give you bad as well as the good. Here are some of the challenges you might face with a business bank account.

What to look when choosing a small business bank account


The first challenge to overcome with a business bank account is the cost. Unlike most personal current and savings accounts in the UK, business accounts charge a fee to use. Some charge per payment made/received and others charge a regular flat fee. Some charge both.

It’s best to shop around before you sign up for a business bank account. Ask openly about the fees involved and ensure they’re not too high, otherwise it could affect how much profit you make in the long run. Banks are highly competitive so it’s not difficult to find a good rate.


Another challenge is the amount of paperwork that goes with having a business account. Because your company is its own legal entity, there is a lot more paperwork to deal with. For those not born in the UK, this can mean extensive admin.

If you’re someone who’s had it up to here with administration and paperwork, you might find that the newer, modern banks make onboarding more slick and seamless. You can also ask your bank to opt you out of paper correspondence and let you do the majority of your tasks online.

Hard to switch

Much like a personal account, the act of switching your business banking to another provider can be long winded and difficult. There could be cancellation fees attached to the contract and there may be a long wait in closing your account entirely.

Many people say that the perception of switching is far more difficult than the act itself. While banks won’t be delighted to see you go, they will not legally be able to keep you as a customer. If you are considering taking your business elsewhere, use this as leverage to get what you want from your existing bank or one of your prospects.

Do I need a merchant account?

While cash payments can be deposited straight into your business account (or personal account if you’re a sole trader), card payments are different.

To take card payments you’ll need to set up a merchant account with your card payment provider. The merchant account will run necessary security checks on your customers’ cards, hold the funds until cleared and then deposit into your business bank account. In other words, after the payment is taken by your card machine or payment gateway, it goes to your merchant account and from there it’s automatically transferred to your business bank account. 

Some businesses will be coaxed into setting up a merchant account with their bank. This is typically under the pretext of getting paid faster, but for a small business, this can be a mistake. Opening a merchant account with your bank can tie you into much more restrictive and legally binding contract that makes it difficult to leave.  Read more about the differences between business bank accounts and merchant accounts.

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