How to find a good business bank account if you are self-employed?

If you are self-employed, there are a number of features that you can look out when searching for the best current bank account including:

  • Introductory offers
  • Free banking
  • Business advice
  • Overdraft facility
  • Online banking
  • Accounts software

Introductory offers – Most current business accounts charge a monthly fee for usage, usually starting from around £5 to £6, but some new are free for all time. This fee can sometimes be removed for around 18 to 24 months as part of an introductory offer – which can be ideal for a self-employed person who is looking to watch the pennies. Other introductory offers might include no monthly fees provided you pay a minimum amount into the account per month e.g £750. Other benefits might include vouchers or cashback.

Free banking – Some banks may charge businesses fees for paying in cheques, depositing cash or making payments, but some current accounts offer this for free based on the terms and conditions.

Business advice – Some account providers offer free business advice and mentoring available for businesses and sole traders.

Overdraft facility – Current business accounts will come with an overdraft facility so you can borrow a little extra if you need to. This could be useful for an emergency or if you are waiting for an outstanding invoice to be paid. When comparing different accounts, see what fees apply and some offers might be able to provide low or zero percent interest.

Online banking – All banks can offer online banking facilities and apps so that you check your balance and make payments on demand.

Accounts software – Some providers include various software for their customers including invoice software, payment alerts and more.

Do I need a current business account if I am self-employed?

It is not a legal requirement to have a current business account if you are self-employed (where it is a legal requirement for limited companies). However, it can be very useful and practical for self-employed workers and sole traders if:

  • You are processing a lot of transactions
  • You want to take out a business loan or business credit card
  • You want to organise your income and expenses more efficiently for HMRC
  • You are planning on incorporating your business into a limited company
  • You want to take card payments from your customers
  • You want to look more professional when taking payments from customers

One of the main reasons for getting a current account is so that you can organise your income, payments and expenses more efficiently for the HMRC. When putting together your tax return and paying your tax bill, it can be difficult trying to work out what travel or expenses were for personal use or for business use – but with a business account, you have things totally separate and it is much easier to organise.

Some banks will not allow you to use your personal account for business use as mentioned in their terms and conditions. This is particularly in the case of a limited company, because the money is not necessarily all yours – some will be for staff or other stakeholders. You therefore run the risk that using your personal account too often for business related activity could lead to getting a warning or your account being frozen or closed by the bank.

If you are looking for a business loan or business credit card, you will get preferential rates and faster approval through the provider that you bank with. Naturally, you will need a business current account to be eligible for a business credit card.

It also looks more professional if you are invoicing from a business bank account, rather than a personal account.

How is a business current account different to a personal account?

A business account works in the exact same way as a personal account, in terms of how you accept payments through BACS, transfer money and make payments etc. You will also get a cheque book, direct debit card and access to telephone banking like you would with any personal current account. The main benefit is that you can organise all your expenses and payments separately which is convenient for filling a tax return.

Whilst you may have less perks with a business current account in terms of cashback and vouchers, there are many other advantages such as having access to a business bank manager, free business advice, discounts off business products and faster access to business loans.

Do I need to register that I am self-employed?

Yes, if you earn over £12,000 per year, as a person who is self-employed or a sole trader, you will need to register as a sole trader with the UK government. This assumes that you are self-employed and are responsible for paying your own tax and any money earned you will be able to keep as a profit after paying any costs and taxes.

Other requirements include:

  • Registering for self-assessment and file a tax return every year
  • Keeping records of your business sales and expenses
  • Paying tax every year
  • Charging VAT once your annual revenue is over £85,000
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