Business bank accounts: types, requirements and how to choose

A business bank account is a current account in your business's name that keeps business income and spending separate from your personal finances. This guide is for new and established UK businesses choosing or switching an account. A good account makes bookkeeping and tax returns simpler and gives lenders clear evidence of how your business trades.

Smart Funding Solutions doesn't provide bank accounts. We're a finance broker, and this guide is here because your business account history is one of the first things lenders on our panel look at when we approach them on your behalf. It forms part of our business support services.

Do you need a business bank account?

• Limited companies: yes in practice. A limited company is a separate legal entity, so its money must be kept apart from the directors' personal money.
• Sole traders: not legally required, but strongly recommended. Many banks don't allow business use of personal accounts, and separate records make Self Assessment much easier.
• Partnerships, LLPs, charities and clubs: usually need an account in the organisation's name.

If you're still deciding on a structure, see sole trader vs limited company.

Types of business bank account

Free and low-cost accounts

Many providers offer accounts with no monthly fee, sometimes only for an introductory period. After that, fees may apply, so check the charges for transfers, card payments, cash deposits and international payments.

Start-up accounts

Designed for newly formed businesses, often with an introductory fee-free period and added tools such as invoicing or bookkeeping integrations.

Contractor accounts

Suited to contractors trading through their own limited company. They let you receive client payments, pay yourself salary and dividends, and set aside money for corporation tax and VAT.

Accounts for businesses with adverse credit

Some providers offer basic business accounts for businesses or directors with poor credit, CCJs or past insolvency. These may have fewer features, such as no overdraft, and are often online-only. Running one well builds a track record that supports future applications.

Business savings accounts

Savings accounts let surplus cash earn interest while staying separate from day-to-day funds, which is useful for tax reserves and emergency buffers.

What you need to open an account

• Proof of identity for each director or owner, such as a passport or driving licence.
• Proof of residential address, such as a recent utility bill or bank statement.
• For limited companies: company registration number and details from Companies House, plus details of significant shareholders.
• Your business address and a description of what the business does.

Banks carry out identity and anti-money-laundering checks and often a credit check.

Online banks vs high-street banks

Online-only providers often open accounts quickly and offer good mobile apps, but may have limited options for depositing cash or cheques. High-street banks offer branch access and a wider range of lending, but applications can take longer. Consider how you are paid and whether you handle cash before choosing.

Questions to ask before you choose

• What are the monthly fees and transaction charges after any introductory period?
• Can you deposit cash and cheques easily?
• Does it integrate with your accounting software?
• Is an overdraft or other lending available?
• What are the charges for international payments and currency exchange?
• Are deposits protected by the Financial Services Compensation Scheme?

How your bank account affects borrowing

Business bank statements are central to most finance applications. Lenders use them to check turnover, regular outgoings, existing debt repayments and how the account is managed. To put your business in a strong position:

• Run all business income and spending through the business account.
• Avoid unarranged overdrafts and returned payments.
• Keep a cash buffer where you can.
• Keep personal spending out of the business account.

When you apply for finance, lenders typically ask for three to twelve months of statements alongside accounts and ID; our guide to documents needed for a business loan lists the rest. Your banking conduct also feeds into your business credit profile, explained in our guide to what goes into a company credit report.