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Should I open a Business Bank Account for my Limited Company?

Starting a Business
Should I open a Business Bank Account for my Limited Company?

When a new limited company is incorporated, a business bank account should be set up as there are many advantages to the business owner. Read about them below.

What is a Business Bank Account?

In its simplest form, a business bank account is an account that is opened by a business (Limited Company) and is solely used for business transactions. It is generally assumed that a newly incorporated company would open a business bank account immediately using the new company's name, though in certain circumstances, a business bank account may not be needed upon incorporation of the company. This could be because the company has been incorporated but it may not have started trading (Dormant) immediately. Therefore, a business bank account may not be necessary at this point in time.

Once the company starts trading and has a large number of income and expenses, then having a business account is a vital component for a company to run smoothly as the account would be used for the recording and processing of all of the income and expenditure for the business. Then a company can easily review its performance and the funds that it has available.  

Should I Open a Business Bank Account?

The Companies Act 2006 does not explicitly state that a limited company should have its own bank account. Though the Companies Act clearly outlines the duties of company directors including the duty to exercise reasonable care, skill and diligence. This extends to ensuring that the company's financial records are accurately kept and managed.

HMRC also have their own requirements for limited company's accounting records. They require that companies must keep extensive accounting records which include: 

  • All money received and spent by the company
  • Details of assets owned by the company
  • Debts the company owes or is owed
  • Stock the company owns at the end of the financial year
  • All goods bought and sold

To conclude, though it may not explicitly be required by law for a business to have its own bank account, it is significantly easier for a business to operate using one in order to comply with the requirements of the governing bodies and relevant Acts.

What do I need to Set-Up a Business Bank?

In order to set-up a business bank account for a limited company, you would be required to provide information in accordance with the banks criteria. The information and the criteria required can change depending on the company's structure, business type and the bank who the account is to be held with. The most commonly requested information required to open a business bank account is:

  • The UK Business Address
  • A company representative living in the UK (a director or an employee), who will be the account signatory, this could also require evidence such as Photo ID such as a driving license or a passport
  • A UK business plan showing why you need a UK business bank account 
  • A clear identification of all parties who own more than 10% of the business
  • Sometimes, the company's UTR is also required for opening a business bank account

Advantages of Having a Business Bank Account

A business bank account functions in practically the same way as a personal bank account would. Although, with a business bank account, the company has a multitude of advantages which are associated with the account. A few of these advantages are:

1. Better Management of the Company's Finances

Having a separate business bank account will allow a company to clearly locate and categorise business expenses which will allow the accurate calculation of its deductible expenses which can reduce its corporation tax due at the end of the period. If a business uses a personal account to operate the business through, it will make the consolidation of expenses more time consuming and complex. 

Using a business account makes it significantly easier to separate the businesses funds from your own personal funds. This is because you can view the business account; and the funds which are visibly available should all be the company's funds which can be readily spent. If you use a personal bank account it is harder to differentiate your personal funds and the businesses funds.

The better management of the company's finances would also protect the personal funds and assets of the directors, and any shareholders who may have invested their funds. It protects these assets from any legal proceedings or debts that had been incurred by the company. 

2. Builds Business's Credit Rating

When you use a personal bank account accessing a loan or an overdraft for your business will directly effect your personal credit score. Whereas if you open a business bank account, this will impact the business's credit rating. This is because the business is its own legal entity, and therefore builds its own credit rating instead of impacting your personal credit score. 

3. Makes the business look more professional

Using a personal bank account for business transactions can look unprofessional, and can even look illegitimate to customers and suppliers. Where as using a business bank account for all business transactions going through the company will make the company look more trustworthy and professional.

When making transactions, whether they're people paying money to your business or if the business is paying for supplies and services itself, it is important for those transactions to be made from a bank account in the limited company's name. Therefore, when other company's or individuals look at their bank statements they will see the company's name and instantly be reminded of the product purchased.

4. Business Accounts Offering Additional Features

With many business bank accounts there are additional features which are accessible to businesses. Some of these additional features can be automated invoicing, accounting tools, free transfers, cashback, access to overdrafts and rewards to name a few. These bank accounts are fitted with an array of tools and features which make running your company easier. 

Need more help?

We hope this article has provided clarity on the importance of a business bank account and whether it's the right choice for your company. If you are looking for more guidance on managing your business and its finances, please visit our Knowledge Base to search for relevant resources, or visit Easy Digital Company to incorporate your business today.

This article is information only and has been prepared for general guidance on matters of interest only, and does not constitute legal, accounting, tax, investment or other professional advice or services. You should not act upon the information contained in this article without obtaining specific professional or legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this article, and, to the extent permitted by law, Comdal Limited, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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