One of your first tasks as a new contractor is to choose and open a business bank account.
Read on to find out more about choosing the best account, and compare banking fees.
- Do you need to open a separate bank account?
- What type of account do most contractors need?
- How to compare business bank accounts.
- Is your bank feed compatible with FreeAgent?
- Is there such a thing as a free contractor bank account?
- Our comparison table of 12 banking providers.
- A look at 2 challenger bank accounts – Tide and Cashplus.
- How do you open a business bank account?
- How your deposits are protected by the FSCS.
Scroll down for our business bank comparison table of the main high street and challenger names.
Do you need a separate bank account as a contractor?
This all depends on the type of business structure you choose to trade under.
As a limited company is a distinct legal entity in its own right, you can’t use your personal account for your business transactions.
You have to open a dedicated account for your limited company.
Umbrella contractors, who are PAYE employees, do not need to open a separate business bank account.
If you’re a sole trader (self employed), you are the business; there is no legal requirement to open a separate account
However, there are practical reasons why it is worth splitting your business and personal transactions.
It makes accounting far easier, and your accountant will be pleased too.
What type of bank account do contractors need?
If you are a limited company contractor, your bank transactions most likely match a common pattern.
- Payments from your recruiter, agent or client – typically weekly or monthly
- Dividend payments to shareholders.
- Salary to director and other employees.
- Expense reimbursements.
- Payments to pension, life insurance, etc.
- Accountancy fees.
- Taxes (VAT, Corporation Tax)
So, the number of transactions is fairly low. Unless you’re operating another type of business via your company (e.g. an eBay business), you won’t need a high transaction bank account.
The main goal is to pay as little as possible for your business banking, avoid punitive charges, and gain as many added extras as possible.
This is a guide to current accounts. Also worth a read: our guide to business savings accounts.
How to compare bank accounts, and avoid unnecessary charges
Most high street banks offer ‘free business banking’ to new companies, for periods of up to 30 months in some cases.
Over the past few years, a growing number of ‘challenger’ banks has emerged. Several offer free ‘no frills’ online-only banking.
Here are some factors to consider, when choosing a bank for your business:
- Does the bank offer ‘free’ banking, or an initial free period?
- Are there any ongoing fees or charges before or after an introductory period?
- Can you open an account online, or do you have to visit a branch?
- Is the account online-only?
- Do you need access to a branch?
- Are you happier with an established high street name rather than a challenger bank?
- Does the bank offer Open Banking (see below)?
Is your bank account compatible with FreeAgent via Open Banking?
Most contractors use FreeAgent (FA) accounting software. We’ve used it since 2010 – it is excellent and an excellent time saver.
FA connects to a growing number of bank feeds automatically – this means that the software is automatically updated with your latest transactions.
Check out this article which lists the bank feeds which integrate with FA via Open Banking. The major banks do, as do challenger providers such as Tide, Mettle and Cashplus.
Is there such a thing as a free contractor bank account?
Very little comes for free in the world of business. We all know that banks can offer ‘free’ banking as they make money out of the interest charged on your deposits. This interest is rarely passed on – aside from savings accounts.
As you can see from the table below, many banks have either a free or low-cost business banking offering.
The high street banks tend to revert to a chargeable structure after the initial period expires. The challenger banks – like Tide – tend to offer permanently free banking.
Compare business bank accounts
This table was last updated in January 2024.
|After Free Period
|Tide Bank Account
|Always + get £50 just for setting up your account!
|FREE business banking, no annual fee. Account set up in 5 mins. £50 cashback when you fund your account – find out more.
|Cashplus Business Go Bank Account
|FREE business banking, no annual fee. Account set up in 5 mins. Integrates with FreeAgent, Xero – find out more.
|Free digital banking for 12 months, then £8.50/month. Cheques/Cash – 60p per transaction.
|Business Current Account – Free digital transactions, changes for cheques and cash.
|Kinetic Account £6.50/month, electronic transactions free.
|£7/month, electronic transactions free, 85p per cheque/credit.
|Free if balance over £6k
|Up to 30 free transactions if balance over £6k… then 30p each.Or £6/month fee and all e-payments 30p.
|Owned by NatWest – which also owns FreeAgent. Lots of invoicing/admin/accounting features.
|No monthly charge after free period ends. Automated payments £0.35 each. Free FreeAgent subscription.
|Business Current Account £5/month for 18 months and @ £12.50 after. Incl. all standard transaction fees.
|Business Plus Account (£5/month, free if average balance over £10k); Free e-transactions, cheques and cash 70p per transaction.
|£6.50/month after promotional period. Automated transactions 30p each. 65p/£100 cash handling, 30p per cheque.
Tide Banking – £50 cashback, no annual fee, free transfers
Tide is a rapidly growing alternative to the high street names. Within a year of launch, 1 in 12 new accounts was opened with Tide.
There are no monthly or annual fees – this is genuinely free banking.
You can open an account within 5 minutes, and you’ll receive:
- A UK business bank account number and sort code.
- Free contactless Mastercard.
- Mobile and web banking.
- Tide is very online-accounting friendly and integrates with FreeAgent.
- Free transfers for 12 months.
- Get £50 cashback when you fund your account, if you apply via the link below.
- Connect fo FreeAgent via Open Banking.
Cashplus free Business Go bank account
Another alternative to high street banks is Cashplus – a fully regulated British bank with over 1.6m clients.
The Business Go account is free. You have 3 free transactions per month, and pay 30p/transaction thereafter.
Here are some of the key features:
- Almost instant account set-up (same day in 99.95% of cases).
- Integration with your accounting software (FreeAgent, Xero, etc.)
- Manage your account online or via a mobile app.
- Integration with your other bank accounts via Open Banking, e.g. FreeAgent.
- Open to all types of business – limited companies, sole traders, and partnerships.
- Overdraft and credit facilities are available (unlike many other challenger banks).
- Business Extra account available for £9,95/month with extra features.
- No credit check.
- Cashplus is FSCS protected – up to £85,000.
Business savings accounts
With interest rates on the rise, you can benefit from transferring any surplus funds from your current accounts to an interest-bearing savings account.
For term deposits, you can currently earn over 5% per annum.
What do you need to open a bank account for your company?
Whether you decide to apply for an account via an intermediary, or directly, you typically need to have the following information to hand.
- The names and addresses of all company directors
- Any previous names/addresses (if you’ve lived at your current address for under 3 years).
- Your date of birth, nationality and residency status.
- Details of your personal current account (sort code/account number)
- Your limited company details (you’ll need to have formed a company before setting up your account) – including your company’s registered number and registered address.
- Photo ID (passport, driving licence, etc.)
- Proof of the applicant director’s home address (originals).
- Company paperwork, such as your certificate of incorporation, a letter from your accountant, an HMRC letter, etc. Check with the bank you’re applying to for their ID requirements.
If you apply for an account with a high street bank, you may well be invited for a ‘meeting’ with a business banker.
This is a formality, but don’t be surprised if you’re asked about how you plan to run your business and your future funding requirements.
If you’re able to apply for a new account online, you can avoid this possibility altogether!
Is your business account protected?
The Financial Services Compensation Scheme (FSCS) was set up to cover business deposits, just as it does personal assets.
The FSCS protects up to £85,000 per account if a bank fails.
As a limited company is a separate legal entity from its shareholders, you receive the same level of protection for both your personal and your business accounts, if you use the same bank for both accounts.
Importantly, if you’re a sole trader, you are not a separate legal entity to your business. This means that the £85,000 limit does not apply to any accounts you hold at the same financial institution.