Business Bank Accounts
Navigating the intricate landscape of self-employment is no easy feat, especially for contractors. Amidst the myriad of regulations, one term stands out prominently: Limited Companies. But what business bank accounts are available to you?
If you’ve recently incorporated a limited company, setting up a business bank account is one of your first steps. A company-owned business bank account helps directors maintain distinct financial records, a requirement for running a limited company.
In this comprehensive guide, we delve deep into the heart of limited companies. Whether you’re an aspiring contractor or a seasoned veteran seeking clarity, this guide aims to empower you with the knowledge to make informed decisions.
Does A Limited Company Need A Business Bank Account?
According to the Companies Act 2006, it is a legal requirement for a limited company to have a bank account. The bank account must be registered to the limited company; it can’t be registered under the name of its directors or shareholders.
If you’re a contractor that has recently incorporated a limited company with Companies House, you must open a business bank account before you start trading and making/receiving payments.
Does A Sole Trader Need A Business Bank Account?
Sole traders are not legally required to open a separate business bank account; however, it is considered best practice to do so. Having a distinct account makes it easier to keep track of business-related transactions, manage cash flows, prepare accounting records, and file tax returns.
A separate business account makes a sole trader appear more professional and may be a prerequisite to applying for a business loan.
Advantages Of A Business Bank Account
Beyond being a legal requiremet, there are several advantages to opening a business bank account for a limited company.
i) Financial Records
It will help you maintain accurate financial records by making tracking the business’ income and expenditure easier.
ii) Cash Flows
Having a separate bank account facilitates more accurate tracking of cash flows, enabling you to understand your business’ financial position better.
iii) Credit Facilities
Should your business require it, your banking provider will likely offer overdrafts, business credit cards and business loans.
iv) Credibility
It improves your credibility. Very few businesses would choose to work with a limited company that uses the personal bank account of one of its owners.
v) IR35
It helps cement the Outside IR35 status of any contract using the limited company. It is not you as an individual offering the service; it is your business providing it.
Choosing A Business Bank Account
The best bank account for you depends on your business, although there are several key things to look out for:
i) Fees
Most business bank accounts will charge maintenance and transaction fees if you exceed a certain number of monthly transactions.
ii) Online And Mobile banking
Most customers expect to be able to monitor their banking online and via their mobile. Make sure you check out the provider’s website and app to make sure it works for you.
iii) Customer Service
Everything is excellent with business banking until it’s not. It’s important to consider reviews other customers have left regarding customer service and how the provider reacts when things go wrong.
Opening A Business Bank Account
Opening a business bank account for a limited company usually involves providing the bank with a list of information and identification documents, including but not limited to:
- Business name and address;
- Companies House registration number;
- Personal details and contact information; and
- Proof of address.
Many applications, including those for the challenger banks mentioned above, can be done online or directly through the bank’s mobile application. There is no need to arrange a face-to-face meeting.
Non-UK Residents
No legal restrictions prevent a non-UK resident from opening a UK business bank account, however, you will find that most banks will follow stricter procedures. Anti-money laundering regulations in the UK are stringent, and accepting overseas clients can result in compliance issues that banks want to avoid.
Although not impossible, if you are a contractor based overseas looking to open a business bank account in the UK, you may have to shop around a bit to find a provider.