Whether you’re a sole trader or have a side-hustle, it’s often recommended that you open a separate bank account to manage your finances. A number of UK providers offer bank accounts that have been designed for those who are sole traders.
Access to products and benefits on accounting software, insurance and more.
This everyday business bank account from HSBC can be applied for in a matter of minutes via the app, with most accounts being opened the same day. What's more, there's no monthly maintenance fee for the first 12 months and you'll also be able to apply for an overdraft of up to £30,000 in-app. The account enables users to manage direct debits and standing orders, freeze and unfreeze their debit card, analyse spending with automatically categorised transactions, and keep track of their finances with a monthly breakdown of cash flow. There's also the option to scan and deposit cheques in the app and make payments of up to £25,000 per day. Larger payments can be made via business telephone banking. Note that you cannot make international payments via the app and cheque books are not issued for this account.
Pros
Easy to apply for and manage
Arranged overdraft
Useful app features to help you track spending
No monthly fee for 12 months
Cons
Interest is charged on overdraft
Monthly maintenance fee applies after first 12 months
One of the biggest draws of this business account from Mettle is that it's completely free to use. You can also apply in a matter of minutes from the app. Mettle is part of the NatWest Group and its account offers a range of features and benefits. These include assistance with invoicing, the option to set up Money Pots so that you can save for things like tax and new equipment, plus an overview of your cash flow at any time so you can keep track of your spending and income. You can also sync the account with accounting software such as FreeAgent, QuickBooks and Xero. To apply you must be a sole trader or limited company with up to two owners, and have a balance of less than £50,000 for sole traders, or £100,000 if not. You must also be a UK-based company and be a UK resident.
Up to £50,000 subject to eligibility and application
Requires credit check
If you're looking for a straightforward business bank account with no monthly fee and no UK payment charges, the Starling business account is worth a look. Applying via the app is easy and you'll also benefit from free 24/7 UK support via the app, phone or email. The account offers up to £85,000 protection under the Financial Services Compensation Scheme, as well as free ATM withdrawals and no fees abroad. Further benefits include integration with QuickBooks, FreeAgent and Xero, automated business spending categorisation, receipt capture, and international payments. Accounts can also be customised with add-ons, provided you're happy to pay a monthly fee. This includes the Business Toolkit which helps you create and send invoices, calculate tax, record your VAT and submit your VAT return, a Euro business account for exchanging and holding euros, and a US dollar business account for holding, sending and receiving US dollars.
Pros
Add the new Business Toolkit onto your free Starling account and get the first month free of charge (RRP £7pcm)
Completely free UK current account opened and ready to use in 20 minutes
Safe and secure
Fully licensed by the FCA and PRA
Free to use your card abroad including ATM withdrawals, splitting the bill made easy with "settle up" feature, competitive and comprehensible overdraft fees
Decent interest rate paid on current account balances
Efficient app offering a range of good features such as budgeting tools and saving features
Has a marketplace offering competitive pensions
Mortgages and insurance from other growing fintech companies
Teen account options
24/7 customer support (for all types of enquiries)
Cons
Relatively new so does not offer every feature, e.g. mortgages
No bank branches, all done via the web
Only available to UK residents
Accounting integrations
FreeAgent, QuickBooks, Xero
Account fee
Free
Arranged overdraft
Up to £50,000 subject to eligibility and application
£50 voucher when you open a Tide business bank account.
There are three different pricing plans with this business account from Tide, one of which is a free option. You can upgrade your account at any time as your business grows. All options allow you to sync your account with accounting software such as QuickBooks, Xero and Sage, as well as automatically categorise transactions, and send, pay and track invoices. Then, depending on the plan you have, you'll have a certain number of free transfers per month, be able to enjoy exclusive member perks and, with the most expensive plan, benefit from a dedicated account manager and cashback on your Tide card. Opening an account can take as little as 10 minutes and no credit checks are carried out. You should receive your Tide card within 2 to 4 working days. Cheques cannot currently be paid into the account.
Pros
24/7 customer support
Categorised spending
FCA regulated
Quick set-up
No monthly fees
Easy to manage accounts and track payments within the app
Ability to set up direct debits and standing orders
No annual or monthly fee when you apply using the Finder link.
The Zempler business account charges no monthly fee and no fees for UK purchase transactions. Signing up for the account can be completed in a matter of minutes and once your application is approved, your card will arrive in 3 to 5 working days. Once your account is up and running, you can deposit cash via bank transfer or the Post Office, use your card online and instore or to withdraw cash, pay bills and expenses online and categorise spending on the go via the app. You'll also be able to track expenses and block certain transactions, order up to 20 additional cards, download statements for each card in CSV format online, manage cards via a centralised management system, and integrate your account with accounting software. Funds are also protected up to £85,000 by the Financial Services Compensation Scheme.
Pros
Open an account in 5 minutes
"Cashplus iDraft" once eligible
Currency cards for travel
Online services in addition to the mobile app
Cons
Charge to have your bank card issued
Traditional bank still needed for majority of your business finance needs
Can I use my personal bank account as a sole trader?
Unlike limited companies, there’s no legal requirement for a sole trader to open a business bank account.
However, legal aspects aside, most banking providers don’t allow personal current accounts to be used extensively for business purposes.
So, if you’re a sole trader, it shouldn’t be a problem to accept payments for the work you have carried out. But if a high volume of business-related payments is noted going in and out of your personal account, then your bank may contact you and ask you to set up a business account.
Should I get a business bank account as a sole trader?
If you’re going to be doing a huge amount of business banking, we’ve already established that even as a sole trader you probably won’t be allowed to use your personal current account for that.
But apart from that point, there are lots of other advantages that come with setting up a business bank account.
For one, it makes it a lot easier to keep your personal and business finances separate, especially when it comes to the end of the financial year and you need to work out your tax bill.
And then there’s the fact that some business accounts come with great features to help you manage your cash flow and bookkeeping.
Depending on which account you sign up for, you could benefit from an invoice creation service, expenses management, spending categorisation, budgeting tools and tax and VAT calculators. If you already use a different accounting software package, such as QuickBooks or Xero, these accounts can often integrate directly with those too.
And with a raft of new digital account providers on the market, you can usually manage all of this on the go through a slick mobile banking app.
How to set up a business bank account as a sole trader
Some banking providers have specific accounts designed for sole traders, while other banks will just let you use their standard business account. The application process varies by provider, but most can be completed online now.
In general, when you open a business account as a sole trader, you’ll be asked for proof of ID, proof of address and your contact details (plus your business name and address, if you have chosen to set these up as separate to your own). You might be asked for some details about your business, and a credit check may also be carried out.
Why is a business bank account useful for sole traders?
Although it is not a legal requirement, there are many advantages to having a business bank account as a sole trader.
It’s easier to separate your finances and track your cash flow
Using your personal account for your startup business or side hustle might work at first, but as you start to carry out more transactions, your finances can quickly become overwhelming! This is especially true when transactions are not labelled clearly, or you want to keep an eye on the cash flow of your business separately from your personal finances.
If you choose to set up a business bank account, you’ll find it much easier to track how your business is doing as a sole trader, especially when you have many other responsibilities to keep you occupied.
End-of-year and tax calculations are smoother
As a sole trader, you are responsible for reporting your tax bill to HMRC at the end of the financial year. If you’ve been using a specific business account for all your business-related transactions, this process will be a lot quicker and easier and save you from the headache of tracking everything down.
Business accounts have features to help manage cash flow and bookkeeping
Many business bank accounts come with additional features that will make your life easier if you are a sole trader trying to manage your business’s day-to-day operations.
Some of these include:
Interest rate
Invoice creation
Expenses management
Spending pots or categorisation
Budgeting tools
Tax and VAT calculators
Payment notifications
Setting up standing orders for expenses
If you use accounting software, you may also be able to link this with your business bank account through accounting integrations.
You may have access to additional perks
Many business accounts offer benefits, such as cashback when you spend with your business card. You can also get additional physical debit cards for your employees.
Appear professional
Finally, having a dedicated business account helps you appear more professional to your customers! It helps them to feel safe that they are sending their money to the right place and that your business is legitimate.
How to choose and compare a bank account for a sole trader
As with any financial product, the key to finding the best business bank account is to shop around and compare your options.
As part of your comparison, you’ll need to consider which features are the most important to you. For example, are you willing to pay a monthly fee or would you prefer a free account? Keep in mind that there may still be charges for certain transactions such as transfers and cash withdrawals.
You should also think about whether you might need an overdraft, whether you want your account to link to accounting software such as QuickBooks and Zero, whether you need invoicing support and whether you need to regularly bank overseas.
Don’t forget to also consider how you want to manage your account. Are you happy to bank solely online/via an app or would you like the option of being able to pop into a branch? When you’ve considered these options, you should find it easier to find the right account for you.
What does a sole trader need to apply for a business bank account?
The application process varies between business account providers, but you will always need the following:
Your business name and address
Your own personal details and contact information
A form of ID
Proof of address
Estimated business turnover
Personal banking/financial statements
Companies House registration number, if you’re a limited company
Using digital business accounts vs a traditional account
An increasing number of digital-only bank accounts have launched onto the market in recent years such as Tide, Revolut and ANNA Money, but how do they compare to traditional high street bank accounts and why should you choose one?
One of the biggest benefits of opening a digital business account is that the application process is quick and straightforward. In many cases, your account will be open the same day you applied. Some digital business accounts can even be opened without requiring a credit check, making them a good choice if you’re just starting out and have a limited credit history.
Many digital-only accounts also offer more innovative features compared to traditional bank accounts, whether that’s through linking to accounting software, offering budgeting tools, or including fee-free foreign transactions.
However, there are of course downsides. For a start, you’ll need to be happy managing your account online or via an app. Depending on the provider, you may also be able to manage your account via the phone, but there will be no bank branches to pop into if you need assistance.
Unlike high street banks, money held with digital business accounts won’t always be protected by the Financial Services Compensation Scheme (FSCS) either. This protects up to £85,000 per person, per financial institution. Instead, your money is likely to be protected by safeguarding requirements under the Electronic Money Regulations 2011.
Finally, keep in mind that because many digital-only business accounts do not carry out credit checks, they also will not offer overdrafts. In comparison, most high street bank business accounts will offer credit, including overdrafts and business credit cards. Again, you’ll need to weigh up what’s most important to you to help you decide.
Pros and cons of setting up a business account as a sole trader
Pros
Keeps your personal and business finances separate
Easier to work out your tax and expenses
Some business accounts come with tools to help with invoicing, expense management and tax calculations
Cons
Business bank accounts usually come with monthly and/or transaction fees
A sole trader with small-scale banking requirements may not need one
Bottom line
It’s not a legal requirement for a sole trader to set up a business account for their banking needs (like it is for limited companies), and business accounts do often come with fees attached. But there are several advantages to opening one, including making the management of your business finances easier and being able to take advantage of any invoicing, cash flow and tax calculation tools that may come with it.
Frequently asked questions
As a self-employed person you can usually claim bank charges as a business cost. The Gov.uk website has full details on self-employed expenses.
It is possible that you’ll be credit checked when opening a business account as a sole trader.
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Michelle Stevens is a deputy editor at Finder, specialising in banking, credit, loans and mortgages. She has a journalism degree from the University of Sheffield and has been a journalist for 15 years, writing on topics including fintech, payment systems and retail. In her spare time, Michelle likes to travel, explore new foodie experiences and attempt to improve her own culinary skills. See full bio
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Michelle has written 127 Finder guides across topics including:
By switching your business bank account, you may be able to reduce your monthly fees or take advantage of different features like smart bookkeeping tools.
Mettle is a spin-off venture from parent bank NatWest – find out more about what this business banking app has to offer small businesses.
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