Why you need a separate current account for your small business

Why you need a separate business account header image

Have you started a business and are looking to get your finances in order? The first step is setting up a business current account.

While there’s no legal requirement for a separate business current account as a sole proprietor, you may be exposed to penalties if you unintentionally submit false information to HMRC. This can easily happen by mixing business and personal account activities together. Limited companies, however, are required by law to maintain a separate business account.

A business current account gives you the worry-free opportunity to start operating as a legitimate business, pay your bills and, most importantly, start accepting sales transactions from customers.

In this guide, we’ll show you what to look for in a business current account and how to get one in minutes.

Table of contents

  1. The benefits of a separate business current account
  2. What to look for in a business current account
  3. When do you need a business current account
  4. How to open a business account in minutes
  5. Business current accounts: A comparison
  6. Wrapping up

The benefits of a separate business current account

Many new entrepreneurs and business owners want to start a business with minimal fuss and cost. For some, this means sole proprietors prefer using their personal account as their main business account (at least in the very beginning).

While you may save on the transaction fees on card payments that some banks charge, there are several reasons why you should separate your business account from your personal one. Even if you are a sole trader!

Here’s why:

  1. Business credibility: Having a separate account will show your clients you’re serious about what you do.
  2. Loans and credit: Along with business credibility, most banks won’t offer you a loan or line of credit for business purposes without a separate account.
  3. Some banks require it: If you’re starting a Limited company or a partnership, many banks will not allow you to accept business transactions in your personal account.
  4. Easier accounting: When personal and business transactions are reported from one account, bookkeeping can be time-consuming. Having separate personal and business accounts will make things easier to manage and ensure you’re in line with HMRC’s requirements.

Furthermore, if you successfully turn a hobby into a profitable business, you’re still liable for tax if your gross trading income is above £1,000 a year. It’s at that marker that you need to think about registering as a business and opening a separate business account.

What to look for in a business current account

When researching business current accounts, there are a few things you need to keep at top of mind. To start with, many of the more popular high street banks now charge you a monthly account fee on top of transaction fees.

When looking at opening a current account, look out for the following:

  1. How quick and easy is it to open an account?
  2. Do you spend valuable time waiting for approval, or can you get set up online in minutes?
  3. Is an interview required to open an account?
  4. Is there a host of physical paperwork to sign?

Some providers offer accounts with no monthly fees for a limited time. After that, however, they may charge a monthly fee that varies in range depending on the services offered.

Some providers also offer exclusive deals if you open an account in your first year of business, which can take the edge off of your new monthly business account fees as you get up and running.

Ideally, you should find a provider that doesn’t make you navigate multiple obstacles, and is transparent with the services and benefits they provide in exchange for the fees you’re being charged.

When do you need a business current account

As a sole proprietor, there’s no definitive answer, but there are best practices to follow when deciding exactly when to open your business account.

Consider opening an account when:

  1. You begin processing many transactions: If your business is growing and you realise that your personal account could be easily perceived as a business, it’s a good time to open a business account to avoid potential scrutiny from banks.
  2. If your business and personal transactions are becoming complex: If you’ve reached a point where it’s difficult to decipher which transactions are business vs. personal, that could complicate your tax return. Opening a business account will save you valuable time sorting through transactions when it comes time to file.
  3. If you want to start accepting credit card payments: You can either open a merchant account or use an alternative gateway to accept credit card payments from customers. Whether or not you link those payments to a business or personal account is up to you, but it’s important to consider the risks associated with accepting payments online. Also, some banks may require that you have a business account, so opening one at this point in time will help you avoid any potential roadblocks.
  4. You’re planning to begin operating as a limited company: By law, limited companies are required to have a business account. If you’re considering making the change, it’s time to get serious about obtaining a business current account.

How to open a business account in minutes

Depending on the provider you choose to open a business current account with, you’ll need one or several of the following documents:

  1. A document to prove your identity: Such as the UK or foreign passport, or a driver’s license.
  2. A document to prove your address: Your driver’s license or passport will also be sufficient. Some providers may ask for a second document, such as a council tax or utility bill.

You’ll also need your Companies House registration number, and some other details about your business – such as turnover, company director details, etc. To open a business account in the UK, you must also meet the following criteria:

  1. Have an annual turnover of less than £6.5 million
  2. Have a straightforward, clearly-defined ownership structure
  3. Be based and operate in the UK (applicable to all business directors and owners)

Opening a business current account with Tide

We built Tide to make business simple. We’ve woven that philosophy into how you open and use a business current account, allowing you to get your account set up within minutes.

To open your business account, head here to get started.

Tide Home Page preview

Next, select whether you’re opening an account for a registered company or as a sole trader:

Business account sign up journey preview

On the next page, you’ll be asked to fill in some basic personal information about yourself and your business. You’ll then be sent a link to download the app on your iOS or Android device. If you prefer, you can also just download the app straight away and get started just as easily there.

When you open the app the first time, you’ll be asked to enter your email, take a picture of your ID, as well as a photo of yourself for verification. The approval process timeframe varies depending on circumstance and you’ll be sent clear instructions no matter the situation. In most cases it only takes a few minutes to have your business current account set up and ready to go. Your business card will then be sent to your business address in 2-4 working days.

Tide App preview

Pro tip: Did you know you can raise and send invoices directly from the Tide app? We also integrate with several accounting software platforms, automating many aspects of your bookkeeping so you can focus on running and growing your business.

Business current accounts: A comparison

At Tide, we only charge monthly fees if you’re looking for additional services. However, if you’re just starting out, it may be more practical to start fee-free as you establish yourself.

Which is why we use a simple pricing structure without monthly fees. Here’s how we measure against other industry players:

Business accounts pricing comparison table

Wrapping up

Opening a business current account doesn’t have to be difficult. Indeed, while there are many suppliers out there who charge complicated and monthly fees, you do have other options.

With an account like Tide, for example, you’ll be up and running the same day and have your business card with you in less than a week. There are no monthly fees, and the features make accounting and bookkeeping a breeze.

Whichever solution you choose, make sure it helps you take your money further and allow you to focus on what you do best: running your business and making it a roaring success.

Sign up for a FREE business account

Photo by Bruce Mars, published on Pexels

Shahree Zin

Partnerships Manager and small business accounting advocate

Tide Team

Join our community of entrepreneurs, freelancers and small business owners

Tide is here to help small business owners and sole traders save time and money. Take a look at our Business Bank Account and get time back to focus on your business.

Image of Tide card

A business bank account that's free, easy to open, and helps you start doing what you love.

Tide is about doing what you love. That’s why we’re trusted by 300,000+ UK businesses.

Open an account
Image of App Store 4.8, 27k
Image of Google Play 4.6, 3.7k