If you're self-employed, you might be wondering whether you should open a separate business bank account or stick with your personal one. This guide is here to help you weigh the pros and cons. There’s a lot to consider when it comes to setting up a self-employed bank account, so I’ll walk you through the essentials: whether you truly need one, what to look for, and some popular options among the self-employed community.

Updated 15 September 2021

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Table of Contents

1. Do You Need a Business Bank Account If You’re Self-Employed?

2. Can I Use My Personal Account for Business as a Sole Trader?

3. How to Choose the Right Self-Employed Bank Account
   3.1 What are the fees after the free banking period ends?
   3.2 Do you need to handle international payments, cheques, or cash withdrawals?
   3.3 Is the mobile banking app easy to use?
   3.4 Will you need business loans or overdrafts?

4. Popular Business Bank Accounts for the Self-Employed

5. What You’ll Need to Open Your Account

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1. Do You Need a Business Bank Account If You’re Self-Employed?

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If you’re self-employed, there’s no legal requirement to open a business bank account, though HMRC recommends it. However, if you’ve set up a Limited Company, you will need to open a business account in your company’s name, preferably before you start trading.

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2. Can I Use My Personal Account for Business as a Sole Trader?

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Yes, you can use your personal account for your business, and many sole traders do. That said, HMRC advises opening a separate account, especially given situations like the recent coronavirus pandemic, when schemes such as bounce-back loans and the self-employed income support grant required a business account. This led to a surge in applications, leaving many banks overwhelmed and closing their waiting lists.

Beyond the recent surge, there are other benefits to opening a business account:

• Simplifies bookkeeping and keeps business records organized

• Prevents you from accidentally spending money set aside for taxes

• Enhances credibility with clients

• Separates your business expenses from personal spending

• Qualifies you for tax relief on bank charges as an allowable expense

• Provides access to business loans, overdrafts, and other financial products

• Keeps personal finances private, especially if you work with an accountant

• Reduces risk of frozen personal accounts if HMRC conducts a tax investigation

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3. How to Choose the Right Self-Employed Bank Account

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Many banks offer tempting deals like free banking for a set period, but it’s important to consider the long-term costs and features. Here are some things to keep in mind when choosing a bank account:

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3.1 What are the fees after the free banking period ends?

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Some accounts offer free banking for 6, 12, or 18 months. Before you sign up, find out what the fees will be once the free period expires. High fees can cancel out any benefits, and switching bank accounts can be time-consuming, especially if you need to notify customers of new payment details.

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3.2 Do you need to handle international payments, cheques, or cash withdrawals?

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If you regularly deal with international transactions, deposits, or cash withdrawals, be sure to check the associated fees. If you receive cheques from clients, ensure there’s a nearby branch for easy deposits and counter transactions.

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3.3 Is the mobile banking app easy to use?

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Different banks offer varying levels of functionality through their mobile apps. Make sure the app you choose covers all the essential features you’ll need for your day-to-day operations.

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3.4 Will you need business loans or overdrafts?

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Some banks are more focused on transactional banking and may not offer lending options. If you think you might need to borrow in the future, check what options are available.

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4. Popular Business Bank Accounts for the Self-Employed

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There are plenty of business bank accounts available for sole traders, but one of the most popular is Starling Bank.

Starling Bank, founded by Anne Boden, is a favorite among the self-employed. To open a sole trader account, you’ll first need to open a personal account. While this extra step may seem inconvenient, Starling consistently receives rave reviews for its features, which include:

• No monthly fees

• Full UK sort code and account number

• No fees on overseas transactions

• Real-time notifications

• 24/7 customer support

• Integration with accounting software like Xero for automated bookkeeping

• Access to a business toolkit for accounting (additional fee applies)

Most importantly, Starling is FSCS protected, meaning eligible deposits are covered up to £85,000 by the Financial Services Compensation Scheme in the event the bank fails.

Learn more and open a Starling account here.

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5. What You’ll Need to Open Your Account

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Opening a business bank account involves gathering certain documents to verify your identity and business details, in line with money laundering regulations (KYC: Know Your Customer checks). Some banks may let you start the process online but require a branch visit to complete it. Here’s what you’ll typically need:

• Proof of identity (passport, driver’s license)

• Proof of address (recent bank statement, mortgage statement, or utility bill)

• Business details (trading name, address, business activities, expected turnover)

• Personal details (name, address, phone number, date of birth, residential status)

Setting up a business bank account is a smart move to separate your personal and business finances, and it’s good practice to get this in place from the start. Just be sure to do your research to find the account that best fits your needs.

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