If you run a limited company, you need a separate business bank account, because the company is a distinct legal entity and its money is not yours to run through a personal current account. If you are a sole trader, it is not legally compulsory, but it is strongly advisable: a dedicated account keeps your bookkeeping clean, makes your Self Assessment far easier, and stops most banks from closing a personal account you are quietly using for trade.
The best business bank account UK owners can pick depends on how you take money in. If you are cash light and digital, a free app based account from a challenger will do the job. If you are a retail or trade business banking notes and cheques every week, cash handling charges will cost you far more than any monthly fee, so the account that looks free can be the most expensive one you own. This guide compares the realistic shortlist, costs the traps, and gives you a clear next step.
Do you actually need a business bank account?
For a limited company the answer is yes in practice. Company money must be kept separate from personal money, and mixing the two creates a mess for your accountant, your tax return and any future sale of the business. Banks will also decline to let a company trade through a personal account, so the point is usually settled for you.
For a sole trader there is no legal requirement, and HMRC does not insist on it. That said, using one personal account for both life and business makes it hard to see your true position, and most personal account terms forbid business use. A separate account is cheap insurance against a frozen account and a painful year end.
Whichever you are, the account choice sits alongside decisions like whether and when to register for VAT and how you will meet Making Tax Digital obligations, so it pays to think about the whole finance setup, not just the account in isolation.
What actually separates one account from another
Marketing focuses on the monthly fee. The real differences are elsewhere, and they matter more the busier you get.
Monthly fees and free periods
Digital challengers often charge nothing for a basic account, or a few pounds a month for a plan with more features. High street banks typically waive fees for an introductory period, commonly around 12 to 18 months, then move you to a standard monthly charge of roughly £7 to £10. All of these figures are approximate and subject to change, so check the tariff on the day you apply.
Transaction and cash handling charges
This is where the true cost hides. Some accounts charge per electronic payment, per transfer, or a percentage on cash and cheque deposits. For a business paying in notes regularly, a charge of, very roughly, 0.3 to 0.7 percent on cash deposited plus a per item fee can quietly dwarf a £10 monthly fee. If you handle cash, read the cash tariff first and the headline fee second.
Bank or e money institution, and what it means for FSCS
Some providers are banks, holding a full banking licence, so eligible deposits are covered by the Financial Services Compensation Scheme up to £85,000 per depositor if the bank fails. Others are e money institutions (EMIs), which are not banks: your money is safeguarded in a separate account at a partner bank rather than covered by FSCS. Safeguarding is a genuine protection, but it works differently and can be slower to resolve. You can check who holds what on the FSCS website and confirm a provider’s status on the FCA register.
Accounting integrations
A feed into Xero, QuickBooks or FreeAgent turns bank reconciliation from an evening’s work into a few minutes. Most challengers and all the major banks now support this. If you are weighing up software too, our roundup of the best AI accounting tools for UK small businesses pairs naturally with the account you choose.
Sub accounts, pots and tax buckets
The ability to split money into pots, one for VAT, one for Corporation Tax, one for wages, is one of the most useful features for a small firm. It stops you spending money that belongs to HMRC. Challengers tend to do this well; some traditional accounts require you to open a separate savings account instead.
Multi user access
If a bookkeeper or accountant helps you, look for genuine multi user access with defined permissions, not just a shared login. Some free plans limit this to a single user, which becomes a bottleneck at year end.
International payments and FX
If you pay overseas suppliers or sell abroad, the FX margin, the markup on the exchange rate, matters more than the transfer fee. Providers built around international payments generally offer tighter margins than a high street bank’s standard rate. Check the all in cost on a sample payment, not the advertised percentage.
Lending and overdrafts
Most e money accounts do not lend. If you expect to need an overdraft, a business loan or a card facility, a bank is more likely to offer it, and having your current account there can smooth an application. You are not obliged to borrow from the bank that holds your account, but it can help.
The main options compared
The shortlist below covers what a UK small business realistically considers, across the high street and the app based challengers. Pricing is approximate and at the time of writing, and every provider changes tariffs, so treat this as a starting map rather than a quote.
| Provider | Approx monthly fee | Cash and transaction charges | FSCS or safeguarded | Best for |
|---|---|---|---|---|
| Starling | £0 for the standard account | No standard transaction fee; cash deposits via Post Office carry a fee | Bank, FSCS protected | Digital first sole traders and small companies wanting free, full banking |
| Monzo Business | £0 Lite; around £5 to £9 Pro | Free electronic payments; cash deposits carry a fee | Bank, FSCS protected | Owners who like the app and want tax pots and integrations |
| Tide | £0 basic plan; paid plans above | Per transfer fee on the free plan; cash deposit fees apply | E money, safeguarded (not FSCS) | Fast opening for sole traders and micro companies |
| Mettle (NatWest) | £0 | No account fee; limited cash handling | E money, safeguarded (not FSCS) | Very small, cash light businesses wanting free banking |
| Revolut Business | £0 basic; paid tiers above | Allowances then per item fees; competitive FX | E money, safeguarded (not FSCS) | Businesses making regular international payments |
| High street banks (Barclays, Lloyds, HSBC, NatWest) | Free intro period, then roughly £7 to £10 | Per transaction and cash handling charges on standard tariffs | Bank, FSCS protected | Cash handling trades and firms wanting branch access and lending |
Two honest generalisations follow from this. If you want free banking with full FSCS cover and rarely touch cash, a challenger bank like Starling or Monzo is hard to beat. If you deposit cash and cheques regularly, price the cash tariff at a high street bank against a challenger’s Post Office fees before you decide, because the winner is not obvious and depends on your volumes.
Opening an account: the reality
Approval can take anything from a few minutes with a challenger to a couple of weeks with a high street bank, depending on your structure and how clean your details are. Have your documents ready and the process is far smoother.
What you will need
- Photo ID and proof of address for every director and significant shareholder.
- Your Companies House registration number and, if trading, details of what the business does.
- An estimate of turnover and expected card and cash activity.
- For sole traders, ID, address and a description of your trade.
Directors should also be aware of the new Companies House identity verification rules, since verifying your identity there is part of running a compliant company that banks now expect to see in order.
Why some applications get declined
Sole traders are sometimes rejected simply because a provider prioritises limited companies, or because address and ID checks do not match cleanly. Certain trades face extra scrutiny or outright refusal under a bank’s risk policy, including some cash intensive sectors, adult services, gambling adjacent businesses, and certain crypto activity. A refusal is not a judgement on you; it is a policy decision, and another provider may say yes.
Switching accounts without breaking your payments
The Current Account Switch Service (CASS) moves your payments, balance and incoming and outgoing transfers to a new account within seven working days, and redirects payments for a period afterwards. The catch for businesses is coverage: CASS is available for many small business accounts but not all providers participate, and larger businesses can be excluded. Check that both your old and new provider are members before you rely on it, using the Current Account Switch Service site.
Where CASS is not available, you switch manually. That means listing every direct debit and standing order, moving each one, updating the account details held by your customers and card provider, and running both accounts in parallel until you are sure nothing is still landing in the old one. Build this into a rolling view of your money with a 13 week cash flow forecast so a missed direct debit does not surprise you.
The mistakes people actually make
These are the errors that cost small businesses money and stress, in rough order of how often they bite.
- Choosing on the monthly fee alone. For a cash handling trade, the deposit tariff dwarfs the fee. Price your actual usage, not the headline.
- Missing the end of a free banking period. Introductory offers end quietly and you move to standard charges automatically. Diary the date the free period ends and review then.
- Assuming FSCS cover. Several popular accounts are e money, not banks, so deposits are safeguarded rather than FSCS protected. Know which you hold, and do not park large balances in a safeguarded account without understanding the difference.
- Hitting cash deposit limits. Some accounts cap how much cash you can pay in per day, month or year. A cash heavy business can outgrow a challenger account fast.
- Being caught out by a compliance freeze. Providers can freeze an account during a routine anti money laundering review, sometimes with little notice. Keep a second account or a cash buffer elsewhere so a freeze does not stop payroll.
- Running trade through a personal account. It breaches most personal account terms and muddles your tax. Open a business account early.
Frequently asked questions
Can a sole trader just use a personal account?
Legally you can, because a sole trader and the business are the same person for tax. In practice most personal account terms prohibit business use, and mixing the two makes your Self Assessment harder and messier. A dedicated account, even a free one, is worth it.
What happens if I am refused a business account?
A refusal is usually a policy decision about your sector, structure or a failed identity check, not a mark against you personally. Apply elsewhere, since risk appetites differ widely between providers, and fix any obvious data mismatch in your ID and address first. A challenger may approve an application a high street bank declined, and vice versa.
Can I hold more than one business bank account?
Yes, and many owners do. A second account is useful for separating tax money, for international payments, or as a fallback if your main account is frozen during a review. There is no limit beyond the admin of keeping them reconciled.
Does my bank have to be the one that lends to me?
No. You can hold your current account with one provider and borrow from another, including through specialist lenders and government backed schemes. That said, a lender that already sees your transaction history may find it easier to assess you, so keeping your main account somewhere that also offers credit can help if you expect to borrow.
Is a free business account really free?
The account fee may be zero, but transfers, cash deposits, card charges and FX margins can still cost you. Read the full tariff, model a typical month of your own activity, and only then compare. Free on the label is not the same as free in your bank statement.
What to do next
- Write down how you take money in. Estimate your monthly card income, cash and cheque deposits, number of transfers and any overseas payments. This decides which account is genuinely cheapest for you.
- Shortlist two providers and price your real usage. Pick one challenger and one high street bank from the table, apply their tariffs to your figures, and compare total monthly cost, not the headline fee. Confirm the FSCS or safeguarding status of each.
- Check integrations and open the account. Confirm the account feeds your accounting software, gather your ID and Companies House details, and apply. Set a diary reminder for the day any free banking period ends.
- Switch cleanly if you are moving. Confirm both providers are in the Current Account Switch Service, or list and move every direct debit and standing order manually, and run both accounts in parallel until nothing lands in the old one.
