When you start out as a limited company contractor, one of your first tasks will be to open a business bank account.
Typical banking requirements for limited company contractors
Almost all contractor companies operate in the same way; they receive weekly or monthly transactions from their end client or agency. They make payments out in the form of salary, dividends and expenses, as well as direct debit payments to their accountants, insurers, and executive pension scheme (if appropriate), etc.
Most contractors do not, therefore, need high-transaction business bank accounts, which would be more suitable for a retailer.
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.
Do you need a separate bank account for your company?
As a limited company is a distinct legal entity in its own right, you cannot use your personal account for business purposes. You have to open a dedicated account for your limited company.
Umbrella contractors, who are PAYE employees, do not need to open a separate bank account.
If you’re a sole trader (self employed), you are the business; there is no legal requirement to open a separate account, although there are practical reasons why it is well worth splitting business and personal transactions.
Compare limited company bank accounts, and avoid unnecessary charges
Most of the 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 – often offering completely free ‘no frills’ banking.
It is important to find out what costs will be applied once your initial banking period expires, as most day-to-day business accounts charge per transaction, or apply a monthly standing charge.
The following details were correct at the start of August 2022.
|Bank||Free Banking?||After Free Period|
|Cashplus Bank||12 months||1% cashback up to £12,000 per year for ITContracting.com users! Find out more here.|
|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.|
|Barclays||12 Months||Two banking plans after 12 month period – 'Mixed Payments'(£8 + 35p transaction fee) and 'e-Payments' (£8.50, electronic payments included.)|
|Cooperative Bank||30 Months||Business Current Account – £10/month service fee following free period. Free transfers, purchasess.|
|HSBC||12 Months||Kinetic Account £6.50/month, electronic transactions free.|
|Lloyds||12 Months||£7/month, electronic transactions free, 85p per cheque/credit.|
|Metro||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.|
|RBS||24 Months||No monthly charge after free period ends. Automated payments £0.35 each. Includes FreeAgent subscription at no cost.|
|Santander||18 Months||Business Current Account @ £7.50 incl. all standard transaction fees. 1-2-3 Business Account also available.|
|TSB||25 Months||Business Plus Account (£5/month, free if average balance over £10k); Free e-transactions, cheques and cash 70p per transaction.|
|Virgin Money||25 months||£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
An alternative to the traditional banks comes in the form of Tide – a rapidly growing business bank. 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.
Cashplus – 12 months’ free banking + 1% cashback
If you open a business account with Cashplus bank, not only will you benefit from free banking – for the first year – you can also earn up to £1,000 on cashback. 150,000 small businesses already bank with Cashplus.
Consider a separate savings account
It is almost impossible to find a business current account that pays a decent amount of interest, especially in the current climate. Most current accounts pay zero interest or minimal interest in exchange for a monthly account fee.
You may also consider opening a separate business deposit account to put aside any future tax liabilities (such as Corporation Tax and Value Added Tax).
You will receive a higher amount of interest than for a current account, although you may have to give notice to withdraw funds in some cases.
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 will typically need to have the following information to hand.
- The name 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 applying online, you may avoid the need to go into a branch at all.
Is your business account protected?
The Financial Services Compensation Scheme (FSCS) will cover your business deposits, just as it does personal assets. The FSCS will protect up to £85,000 per account in the event that the bank fails.
As a limited company is a separate legal entity from its shareholders, you could potentially be protected up to £85,000 for both your personal and your business account, 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, so the single £85,000 limit would apply to any accounts you hold at the same financial institution.