If you’re thinking about setting up your own business, you’re no doubt aware of the many administrative responsibilities you’ll have to take on. One thing many wonder about is: Do I need a business bank account? Or am I OK to continue using my own personal account?

Unfortunately, there’s no short answer to this question. There are some circumstances in which you’ll have a legal requirement to open a business requirement. In all other circumstances, a business bank account can prove hugely beneficial. But even then, they’re not for everyone.

Is It a Legal Requirement for Limited Companies to Have a Business Bank Account?

If you register as a limited company, then you have a legal obligation to open a business bank account. Why? Because the government treats limited companies as their own legal entities, separate from any individuals. All limited companies must have a unique name, a registered address, and a dedicated business bank account.

When you register your business, you can either register as a sole trader, a partnership, or a limited company. You can read more about the differences between these three options in our detailed guide.

Do Sole Traders, Partnerships and Freelancers Need a Business Bank Account?

If you’re a freelancer, an independent contractor, or if you register as a sole trader or a partnership, then you have no legal obligation to open a business bank account. Indeed, there’s nothing in the law that says you cannot continue to use your personal account for your business finances.

However, some banks don’t like their customers to use their personal accounts for business reasons. So if you’re thinking of setting up a business, talk to your bank regardless of whether or not you plan on opening a business bank account. They might require you to open a business bank account even if you’re not going to register as a limited company.

But Do I Need a Business Bank Account?

Even if you have no legal obligation to open a business bank account, business bank accounts can offer so many benefits that you might choose to open one anyway. Just bear in mind that banks often charge a monthly fee for business accounts. But as we’ll see below, a business bank account can help your company grow. So you could say that this fee is justified.

Business Bank Accounts Can Make Tax and Accounting Easier

If you use your personal account for your business banking, your business costs, income and profits will be mixed with your personal finances. This might make it harder for you to complete your annual tax return. A business bank account can make things much easier, as all of your business finances will be in one place, with all your personal finances in another.

Business Bank Accounts Can Help Your Business Grow

Want to attract those big name clients, the ones that will help you achieve long-term, sustainable growth? A business bank account can prove an invaluable asset here. Certain bigger clients may refuse to pay money into a personal account. But even if not, an account that’s registered in your business’s name rather than your own name just looks more professional.

Also, banks tend to reserve certain financial products for customers with business bank accounts, such as loans, business credit cards, and tailored financial advice. These are all things that could accelerate or consolidate your growth as a business.

How to Choose the Right Business Bank Account for You

Almost all banks offer business bank accounts. You might be tempted to simply open a business account with whomever you use for your personal banking. This might be the most straightforward way of doing things. But different banks offer different benefits, so shop around first!

Here’s what you should look for when deciding which business bank account is right for you:

• Fees – Some banks might charge a nominal monthly fee. Others might charge a percentage of however much cash you deposit. Some even charge a fee for withdrawing money.
• Requirements – Some banks might want to run a credit check before they open an account with you. But for others, this won’t be necessary. Some, though, might require personal guarantees from certain people involved in your business. Others may stipulate that you’ve been trading for a set period of time before they make certain services available to you.
• Software Compatibility – For an additional monthly fee, some business bank accounts can be integrated with certain accounting software platforms, such as QuickBooks and Xero. This makes it easier to organise receipts, categorise transactions, and keep track of your invoices and tax records.
• Convenience – Some banks have dedicated apps for their business bank accounts. Some offer branch services via the Post Office.
• Extra Support – Take a look at the other financial products offered by each bank. Most will be exclusively available to customers that have business bank accounts.

When Do I Not Need a Business Bank Account?

Maybe you’re a freelancer and you’re happy to work with a small number of small to mid-size clients. Perhaps you’ve no problem with doing your own accounts, and no plans to ever grow your sustainable operation into a bigger business concern. In this case, a business bank account could simply act as an unnecessary expense, and a lot of unnecessary extra paperwork.

Contractors, too, don’t always need a business bank account. Again, some contractors are happy to work with a small number of small to mid-size clients. It keeps things more personal and more manageable. Once more, in this case a business bank account might just complicate things.

But whether or not you decide to open a business bank account, there’s one thing you simply cannot do without: insurance. This guarantees that, no matter what happens, you’ll be able to continue trading and recover from any setback.

At Tapoly, we have specialist insurance policies for self-employed, freelancers, SMEs and gig workers. Our cover starts at just 35p a day, with no hidden fees. Head here to get a free quote online in minutes.