When you start out as a limited company contractor, one of your first tasks will be to open a business bank account.
As your limited company is a distinct legal entity in its own right, you cannot use your personal account for business purposes. Umbrella contractors, who are PAYE employees, do not need to open a separate bank account.
Almost all contractor companies operate in the same way; they receive weekly or monthly transactions from their end client or agency and 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.
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 24 months in some cases. 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 October 2020.
|Bank||Free Banking?||After Free Period|
|Barclays||12 Months||Two banking plans after 12 month period – 'Mixed Payments'(£6 + 35p transaction fee) and 'e-Payments' (£6.50, electronic payments included.)|
|HSBC||Not accepting new bank account applications until December 2020!||Due to 'unprecedented demand'|
|Cashplus||Always (£69 Annual Fee)||Apply online and get account number and sort code almost instantly. No fees for incoming transactions or outgoing direct debits. Single annual fee. Find out more.|
|Clydesdale||25 months||£6.50/month after promotional period. Automated transactions 30p each. 65p/£100 cash handling, 30p per cheque.|
|Lloyds||12 Months||£7/month, electronic transactions free, 85p per cheque/credit.|
|Metro||Free if balance over £5k||Up to 50 free transactions if balance over £5k… then 30p each.Or £5/month fee and all e-payments 30p.|
|RBS||24 Months||Not taking new applications due to COVID-19. No minimum monthly fees. Automated payments £0.35 each. Cash payments £0.70 per £100. Manual payments £0.70 each.|
|Santander||12 or 18 Months||(18m free if you have a personal account). Business Current Account @ £7.50 incl. all standard transaction fees. 1-2-3 Business Account also available.|
|Tide||Always||FREE business banking, no annual fee. Free card transactions. Account set up in 5 mins – Find out more (use code 'IT Contracting').|
|TSB||25 Months||Business Plus Account (£5/month, free if average balance over £10k); Free e-transactions, cheques and cash 70p per transaction.|
Tide Banking – Business Current Account
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.
Cashplus Business Account
Another attractive alternative to the big High Street names comes in the form of the Cashplus Business Account. One of the biggest advantages this account offers is the ability to apply online, and receive an account number and sort code almost immediately. This could be very handy if your client/agent requires your bank details rapidly.
You won’t have to go through a credit check, or meet a ‘business banking adviser’. There are no charges for incoming transactions or outgoing direct debits. Just a single £69 annual fee.
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. Please note that you do not need to provide proof of ID mentioned below in order to open a Cashplus account (see above).
- 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 the £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 for any accounts you hold at the same financial institution.