Do I need a business banking account?

Read the article

You’ve started your own business – your brand’s great, your product is looking good and you’re ready to take on customers 🎉

But you want to get your new business’ finances in order, stay organised and have control over the money you make. 

As your business grows, it can get complicated if you just use your personal account. So turning to a business bank account may be a good solution for you, and in some cases, you might legally need to set one up.

You need a business account if 👇

You’re a limited company

Limited companies are considered a separate legal entity to you. If you’ve started a limited company, the money that that company makes belongs to the company. This means you have to be separated from its finances, so you’ll need a business bank account.

There are certain rules that’ll stop you taking money out of the account of a limited company. Limited companies can pay salaries, or dividends (which are payments from any profits made) both of which you’ll be likely to be taxed on. But, if someone chooses to take money out of the company account, that will be treated as a director loan and you’ll have to follow strict rules around repayment. There’s also often tax on a director’s loan.  Read more about directors loans on the government site.

You can open a full UK business bank account with Monzo in minutes.

If you’re a limited company, you can add up to two others like directors, accountants and employees, to your account to give them access to it. You can also optionally integrate accountancy platforms such as Xero, FreeAgent and Quickbooks, straight from the Monzo app. 

You’ll have 24/7 customer support from real humans over chat, or you can email and phone us whenever you need. 

Get a Monzo Business Account and help manage your business finances stress-free. Know when you’ve been paid immediately with instant notifications, and put money aside automatically to save for your tax bills with Tax Pots (choosing the percentage you want to set aside).

What about if you’re a sole trader 👇

Sole traders are unlike limited companies in that your business isn’t considered a separate legal entity to you. 

You could keep to your personal account to manage your business’ finances, but you may be creating extra admin for yourself. 

A business account does make life a whole lot easier when it comes to keeping track of income and expenses, and particularly around things like filling out a Self Assessment for tax returns. If you’re taking sales transactions from customers, like if you’re running a food stall or coffee popup, your bank may ask you to take out a business account.

That’s because some banks say that you can’t use personal accounts for business reasons and so you might be breaching their terms and conditions.

Read more about what you need to set up as a sole trader here.

But keeping your finances separate can solve some headaches if you’re a small business

Here are a few reasons why a business bank account might be a good idea:

  • You can see who owes you money and who you owe money to

  • It provides a clearer idea of how much money you have for your business

  • You can save time figuring out if those drinks were you and your mates, or a client meeting you can expense

  • You can create a clean paper trail for your business (this might help with any future queries from HMRC). You could run any payroll for your employees

Don’t forget to check the terms and conditions on your personal account

If you’re using your personal account to manage income and expenses for your business, you may be going against your bank’s terms and conditions. 

If you’re a sole trader your bank might ask you to switch from a personal account to a business account. Whereas personal accounts are generally free, some business accounts will come with a set of monthly fees and charges for transactions, cash deposits and withdrawals.

What are the benefits of having a business bank account? 

You can help keep things clear for HMRC

A business account makes it easier when it comes to filing your tax returns, as all payments are in one place. Submitting the wrong information to HMRC during Self Assessment could lead to penalties.

So if having a business account means less time sifting through personal accounts to separate business income and expenses, and less chance of giving incorrect information, it may be worth it. 

It can help you look professional to customers and clients

Paying a personal name for a service or product may make some potential clients feel uneasy. But having a business account can make your company appear more professional – plus it’s in keeping with the brand you’re building, so you’re recognised by the customer too. 🚀

What do you need to open a business account?

To open a business bank account, you’ll usually need to provide:

  • Proof of identification: passport or driving licence (for all co-directors)

  • Proof of address

  • Business address and contact details 

  • Companies House registration information (only for limited companies or partnerships) 

  • How much money your business is expected to make

Is the money in my business bank account protected?

Any fully regulated UK bank will follow these rules too.

Companies are eligible for this compensation from the FSCS if they’re ‘small companies’.

Monzo is covered by the Financial Services Compensation Scheme (FSCS). Eligible deposits in Monzo are protected by FSCS up to a value of £85,000 per person 💰. Read more about eligible deposits here.

To be considered a small company you have to meet at least two of the following criteria:

  • Turnover of no more than £6.5 million

  • Balance sheet total of no more than £3.26 million

  • Have no more than 50 employees

Sole traders are also covered, but as a sole trader, you’ll share your protection between your personal and business Monzo accounts.

Read more information about sharing your protection between personal and business accounts here and more on you’re covered for.

How a business account can build business credit

A healthy business credit rating could mean your company pays lower interest rates in the future if you need to borrow money. Separating yourself from your company with a business account means your company can grow it's credit rating. 

This may help if you look to get a business credit card or a business loan, you may have to sign a personal guarantee in case the company is ever unable to repay the amount. This could impact your personal credit rating. But if your company has established business credit, there may not be the need for a personal guarantee. 

This may help if you want to get a business credit card or loan. Usually you need to sign a personal guarantee in case your company can't repay the amount, and this could impact your personal credit rating. But if your company has established business credit, there may not be the need for a personal guarantee.

Monzo is covered by the Financial Services Compensation Scheme (FSCS). Eligible deposits in Monzo are protected by FSCS up to a value of £85,000 per person 💰. Read more about eligible deposits here.