Do You Need a Separate Business Bank Account If You’re Self-Employed?

Wondering whether you should open a separate bank account if you’re self-employed or just using your own account? Then this guide is for you! Here I’ll explain more about business bank accounts for the self-employed, whether you REALLY need to open one and the most popular bank accounts that the self-employed community are talking about.

Updated 15 September 2021

1. Do You Need to Open a Business Bank Account If You’re Self Employed?

As a self-employed individual, you are not legally obligated to open a business bank account, although it is recommended by HMRC. If you have chosen to form a Limited Company, then you’ll need to open an account in the name of your LTD, ideally before you start trading.

2. Can I Use My Personal Account for Business as a Sole Trader?

You can use your personal bank account for your business and many sole traders do choose to do this. But HMRC does prefer you open up a separate bank account and in the recent coronavirus pandemic, the bounce back loans and self-employed income support grant could only be paid into a business bank account. This caused much panic amongst freelancers and the self-employed who rushed to open business accounts, leaving the banks inundated with applications and many even closing their waitlists.

Besides the recent rush, there are other reasons to open a business account including:

  • It’s a cheap and easy way to make bookkeeping and business record-keeping simpler;
  • It’ll stop you inadvertently dipping into your tax money;
  • It gives you added credibility in front of your clients;
  • All your payments and subscriptions come out of a separate account, leaving your personal money untouched;
  • You’ll get tax relief on bank charges of a business bank account as an allowable expense;
  • You can access business facilities like overdrafts and business loans as your business grows;
  • If you use an accountant, you may not want them to go through all your personal spending;
  • In extreme cases, if the tax-man investigates you they may choose to freeze your bank account so you’ll be unable to access your personal account if you’re using it for business.

3. How to Choose a Self Employed Bank Account

The promise of free banking, easy opening or low-cost charges can be tempting. But before you set up a self-employed bank account, take some time to look beyond all the promises. Make sure you know exactly what you’ll be charged once all the offers have come to an end. Here are some things you should think about:

3.1 What are the monthly charges once free banking has expired?

Many accounts offer free accounts for 6, 12 or even 18 months. But make sure you know what the charges are once this free period has finished. You may find the charges are so high that they outweigh the benefit of any free period. Switching business bank accounts can be time-consuming, especially if you have to tell customers about changes in your bank details. You may end up needing two business accounts at the same time, while you switch banks.

3.2 Do you need to make international payments, deposit cheques or withdraw cash?

For many banks, this attracts charges. If you need to make regular international payments or withdraw cash, check the charges because they can easily rack up. And if you have customers that pay you by cheque it will make sense to check there is a physical branch near you so you can easily make deposits or any other counter transactions.

3.3 Is the mobile banking app user-friendly?

Different banks offer different functionalities via their banking apps. Whichever account you choose, make sure the app will do all the main things you need on a day-to-day basis to make your life easier.

3.4 Do you think you’ll need business borrowing or an overdraft?

Some banks are geared more towards transactional banking rather than offering lending facilities. If you feel that you may want to look at lending in the future then check what is on offer.

There are a number of business bank accounts for sole traders out there and one of the most popular options is Starling.

Starling was founded by Anne Boden (you can find out more about her interesting story of the ultimate girl power here) and is an established bank account, but you are required to open a personal bank account to get a sole trader account. Despite that extra hassle, Starling receives rave reviews from everyone I speak to and offers some really good features including:

  • No monthly fees
  • Full UK sort code and account number
  • No fees overseas
  • Real-time notifications
  • 24/7 support
  • Connect with accounting software like Xero so you can fully automate your bookkeeping
  • Access to the business toolkit to help manage your accounting (at an additional fee)

Finally and perhaps most importantly, Starling is FSCS protected, meaning eligible deposits are covered up to £85,000 by the Financial Services Compensation Scheme in the event the bank failed.

Find out more and open an account with Starling here.

5. What You’ll Need to Open Your Account

Opening a business bank account involves paperwork so it will help to be prepared. Regardless of whether you go online or into a branch, you will need to provide certain information so that the bank knows who you are.  This is to do with money laundering requirements or what the bank called KYC ‘Know Your Customer’ Checks. Some high street banks allow you to apply online, but will still require you to go in branch to complete the sign-up process as part of KYC.

Here’s some of the information you should have ready:

  • Proof of your identity with a document such as a passport or driving licence.
  • Proof of your address with something like a driving licence, recent bank statement or mortgage statement
  • Details of your business, its trading name and address
  • A brief description of what your business does, expected turnover and an idea of money coming in/going out
  • Your own personal details such as name, address, phone number, date of birth and residential status.


About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.