When you start out as a limited company contractor, one of your first tasks will be to open a business bank current 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 current 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.
This is a guide to current accounts. Also worth a read: our guide to business savings accounts.
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|
|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||Always||FREE business banking, no annual fee. Account set up in 5 mins. Integrates with FreeAgent, Xero – find out more.|
|ANNA Money||Always||Account set up in 5 mins. Loads of integrations, free tools – 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 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.
- 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.
ANNA Money business account
Alongside a business account – which you can set up in under 10 minutes, the ANNA Money product also provides a lot of admin tools, such as invoicing and receipt management.
The basic account is free – you pay 20p per transaction, £1 per ATM withdrawal
If you have lots of transactions and/or additional banking needs, you can opt for the ‘Business’ account which is £14.90 per month and includes 50 free transactions per month and various other benefits.
- 1% cashback on certain spending categories.
- Create and submit professional invoices directly from the app.
- Track when clients view and pay your invoices so you can stay on top of cash flow.
- Provide your accountant with access to your account.
- Upload transactions data to FreeAgent, Xero and other accountancy software providers.
- App provides reminders of your upcoming tax and filing deadlines.
- Receipt management – AI technology extracts key details and categorised expenses for easy tracking.
Business savings accounts
With interest rates on the rise, many contractors will benefit from transferring any surplus funds from their 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 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.