Opening a Business Account in the UK

July 5, 2022

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If you're running a business, whether it is a limited company, a sole trader, a partnership, or another type of business ownership, you should have a business account. Getting a business account set up from the first day is crucial, and for some types of businesses mandatory, because it will help you keep better quality records, make your bookkeeping and accounting easier, and ensure that all your records are in one place. At the business start-up stage, it is important to separate personal accounts and those reserved strictly for business purposes in order to avoid problems with the separation of expenses, income, and profit, as well as with taxes.

What Is a Business Account?

In order to run a business, you will inevitably need a business account. Even though business accounts are not always mandatory by law, they can be an excellent assistant for any type of company. A business current account is almost the same as your personal account in operation, but it's an account for your business only, so it has its features. It is possible to use conventional functions like deposits and withdrawals, conduct local and international transfers, purchase goods and services with a debit card, apply for an overdraft, categorise data about any transaction, track profits, sort expenditures, and prepare taxes. Overall such accounts greatly simplify the work of the business and its financial management.

As a rule, a business account should not be used for personal purchases or transactions. As a business owner, you cannot pay bills or organise a vacation with the money of your company. The same can be applied to a personal account. It should not be used to settle business expenses to avoid wearisome reimbursement and reconciliation in the accounting books. 

Who Needs a Business Account?

If you've set up a limited company or a business partnership, in other words, you're not self-employed, you must have a separate business account. The limited company is a separate legal entity, it's like another person, so it needs its own dedicated account; you can't use your personal one. In the partnership, finances are used in operation by several members, so it is beneficial to have an account specifically for the company and manage the money flow there. 

If you are self-employed or a sole trader, you can use your personal account, since there’s no legal requirement for you to have a separate business account. The general consensus from HMRC's perspective is that if you're self-employed and run a small business, they don't care whether or not you've got a business account, as long as you separate your business dealings from your personal ones. However, you can open a separate account for your personal convenience and divide finances into parts for private and business purposes.

Nonprofit organisations and charities have their own legal requirements in the UK.

The requirements for having a business account may vary in different countries. For example, there are different requirements in England and Scotland. If you are registering a business in the UK, make sure that you are familiar with the rules of the specific country in which you are going to trade.

Read more about Problems Faced by Small and Medium-Sized UK Businesses.

Benefits of Using a Business Account

Business accounts have certain benefits. 

  • Organising your business records. It will be easier for you to manage your company if you have a separate business account. Both incoming and outgoing transaction cheques can be stored on the account. As a result, it may be much easier for you to track expenses, avoid overspending, and calculate the amount of profit. 
  • Business accounts simplify tax returns.
  • You can get additional tools for working with the client base and additional support and consulting. 
  • From the client's point of view, a business account means a dialogue with a well-known company or brand, so you can improve your business image and gain respect. 
  • Business accounts offer solutions for protecting your company’s finances.
  • You can build up your credit history, so it is much easier to apply for a credit card or a business loan.

A Business Account Simplifies Tax Preparation

If you retain a preference to use a personal account, then it is necessary to separate personal expenses and deposits from business ones. Here some complications may arise. It is possible to involve a tax preparer, a person who is responsible for dividing finances and calculating the amount that you have to pay as a tax. Unfortunately, separating expenses and profits manually can lead to two negative consequences:

  • Some business expenses and tax deductions they provide may be missed.
  • A tax preparer may spend much more time analysing your finances and asking uncomfortable questions about what and where you spent.

Both results could potentially cost you money. Either it leads to higher tax returns because of missed business deductions, or extra payment to a person working with you for his/her time and effort. If you have a separate account dedicated to the business only, all these problems can be avoided. 

Who Is Eligible for a Business Account?

If you want to open an account for a business, UK residents with a clean credit rating are in the best position to be accepted, but being a native of the UK is not necessary. In the case you have a locally-based representative, your application for a business account, even by a non-native, can still be accepted. Foreign residents may face large amounts of admin due to the increased alertness to fraud.

What Do I Need to Open a Business Account?

To open a business account with Payrow, you will need to go through the KYC/KYB process

For KYC verification you will need:

  • An ID document. It can be a passport, a national ID, or a driver’s licence. 
  • You will be required to take a selfie 
  • Proof of address, such as a utility bill.
  • Not necessarily, but in some cases, you'll need a bank or tax statement, or other official documents that are not older than 3 months.

For KYB verification you will need:

  • Proof of authority and Power of Attorney, in case a company is registered or ruled by a third party.
  • Licence (If any of the company activities require a government/regulatory licence)
  • A document confirming the structure of the company (for complex structures) 

 A Guide to Accepted Official Documents

There are some cases, when an individual who wants to open a business account may need to upload additional documents. Usually, it is case-specific and refers to certain types of ownership, business area, or company structure. We would like to provide you with a list of extra documents needed:

  • Registry extract
  • Certificate of Incorporation/Certificate of Registration
  • A legal opinion from a law firm
  • Memorandum of Association
  • Certificate of Good Standing
  • Audited annual reports
  • In some cases, other documents may be requested.

Sign up for Payrow to start your journey. You can go through the KYC/KYB process to verify your identity in just one or two days.