What is a business bank account?

The straightforward definition

A business bank account is a current account held in the name of a business rather than an individual. For a limited company it is held in the company’s name; for a sole trader it is usually held in your own name but designated as a business account.

Mechanically it does what a personal account does: a sort code and account number, a debit card, payments in and out, standing orders and Direct Debits. The differences sit underneath.

How it actually differs from a personal account

It is permitted to be used for business

This is the difference that matters most and gets discussed least. Nearly every UK personal current account’s terms and conditions prohibit business use. Banks do enforce it, usually by giving notice to close the account — which is a serious problem when your customers pay into it.

It usually costs money

Personal current accounts in the UK are generally free. Business accounts often are not: high-street banks typically charge a monthly fee after an introductory period, plus charges for cash handling and sometimes per transaction. Several digital banks are permanently free, which is why the market has shifted so heavily towards them.

The bank asks more of you

Opening a business account involves Know Your Business checks as well as Know Your Customer checks. The provider wants to understand what your business does, where its money comes from, who owns it and whether that all fits together. This is why applications get declined for reasons that have nothing to do with your credit file.

It comes with business tools

Accounting software integrations, invoicing, expense categorisation, tax estimates, multi-user access, expense cards. Some included, some behind a paid tier. These are genuinely useful and often the reason to pick one account over another.

Protection works the same way, but the limit is shared differently

Eligible deposits at a licensed UK bank are protected up to £120,000 per eligible depositor, per authorised firm — the same scheme that covers personal accounts. But it is per firm, not per account, so a business and personal account at the same bank share one limit. And several popular providers are not banks at all. See FSCS or safeguarded.

What it does not do

• It does not make you a company. Opening a business account has nothing to do with incorporating. You can be a sole trader with a business account, or a limited company without one (though you should not be).
• It does not handle your tax. Some accounts estimate what you owe and set money aside, but you still file and pay.
• It does not give you credit automatically. Overdrafts are separate applications, and among the free digital accounts only Starling offers one.

Do you need one?

Limited company: in practice yes. The company is a separate legal person and its money is not yours. Running it through a personal account creates a director’s loan account tangle that costs more in accountancy fees than the account costs to run.

Sole trader: no legal requirement, but your personal account almost certainly bans business use. If you claim expenses, a separate account also makes proving them far easier.

Occasional gig work: probably not yet.

The longer version is in do I need a business bank account. If you have decided you do, our picks are split by structure: best accounts for sole traders and best for limited companies.

What it costs

Anywhere from nothing to several hundred pounds a year, depending far more on how you use it than on the headline fee. The variables are the monthly fee, per-transfer charges above any allowance, cash handling, and — the one nobody counts — the interest you do or do not earn on your balance.

Our true cost calculator nets all of that off. On typical small-business numbers the spread between the cheapest and dearest account is close to £800 a year. The detail is in how much a business bank account costs, and the free options are here.

How to choose one

1. Do you handle cash? This decides more than anything else. Charging models differ ninefold for identical deposits.
2. Are you ever paid by cheque? Several digital accounts accept none at all.
3. Do you hold a balance? If you sit on a tax reserve, the interest rate matters more than the fee.
4. Will you need credit? Most app-based accounts do not lend.
5. Does your structure qualify? Some accounts refuse companies with an overseas director, or with more than one director.

Then compare on total cost rather than the advertised fee. Start with our ranking, or go straight to the free accounts if cost is the deciding factor. When you are ready, here is how to open one.