Should I open a business account for my small business?

Whether you’re making it or spending it, money is the lifeblood of any small business. So it won't come as a surprise to hear that managing your finances efficiently is critical to running a successful business. And to that end, there's almost nothing more important than separating your business and personal finances.

From simplifying tax returns and making it easier to monitor your cash flow to giving your business a more professional image, the benefits of having a separate current account for your business are many.

The answer, then? Yes, you should open a business account for your small business. In fact, you should have a business account for any business size. There are a large number of offers out there that cater to all business types: business accounts for start-ups, business accounts for sole traders, and business accounts for small businesses that are incorporated.

When deciding whether to open a business account or not, the status of your business can be a determining factor that carries a legal obligation. The question is no longer should I open a business account, but how to open a business account?

The only exemption to opening a business account in the UK are sole traders. This specific small business type does not carry an obligation to separate personal money from business cash. The reasoning behind this is that HRMC does not view a sole trader as a separate legal entity, which can also lead to your personal property not being protected in the case of financial issues.

Even though sole traders can choose whether to open a business account or not, it is recommended to do so. Having a separate account makes it easier to manage interactions with HMRC, especially when it comes to claiming business related expenses.

If you’re a sole trader or small business owner looking for a straightforward alternative to business banking, check out SumUp’s business account. You can create an account within minutes and start sending and receiving free UK-wide bank transfers without the need for a lengthy credit check or expensive sign-up fees.

What is a business account?

A business account is a current account for your business. It allows you to manage your business’s cash flow and money operations separately from your personal finances. As mentioned above, choosing to open a business account is a smart move as a sole trader, and a choice imposed by HMRC as an incorporated small business.

Business accounts operate in a similar way to personal accounts. When setting up a business account in the UK, you’ll get an account number in the name of the business, and you’ll be able to make and take payments using the business’s name, legitimising your activity on paper and improving your standing with partners, suppliers and customers.

How setting up a business account benefits small businesses and the self-employed

When you open a business account as a small business owner, it may feel like you’re taking on extra admin work alongside managing your personal current account. Although it may appear easier to use your personal current account as a sole trader, if you find the best business account in the UK, your life will only become easier.

Below are the main benefits of setting up a business account as a sole trader in the UK vs trying to juggle a personal current account.

• Small business owners need a reliable snapshot of their cash flow at any given time. With a dedicated business current account, you can easily track income and expenditures, and make sure you’re not missing any crucial information.

• Although starting a small business, especially becoming a sole trader, is relatively simple and easy in the UK, communicating with HMRC and meeting all the requirements can be tedious and time-consuming. Deciding to open a business account allows you to quickly provide key information to HMRC, especially when doing taxes or preparing expense claims.

• Setting up a business account early on will both save you time in the short and long term. When your business becomes too successful to be a sole trader, you’ll need to get a business account anyway.

These larger benefits are just the tip of the iceberg, with each business account supplier providing different functionality at varying price points. Some high-street banks clearly overcharge when it comes to business accounts for sole traders or small businesses, which is why shopping around is always the best way to find what you need.

SumUp offers a free business account for sole traders and small businesses, providing you with a UK account number and sort code, and a completely free solution to manage your business’s cash flow and finances. 

How to find the best business account in the UK - key things to consider

Between the high-street banks and the new era of digital offerings available online, finding the best business account in the UK can be a chore in itself, if you don't know what you're looking for.

Here's an idea of what you can expect when looking for a business current account and how it can influence your choice:

• Sign-up fees or monthly charges: some banks and business accounts charge a regular fee (usually sign-up fee + monthly fee) for their services. This fee is purely for the privilege of setting up a business account with them and provides you with zero value.

• Transactions costs: transactional costs are a popular billing model which has been hijacked by a number of banks and financial service providers, leading to inflated transaction costs on operations such as bank transfers, receiving payments, or direct debits.

• Managing your account: we’re all used to using mobile apps or a web page to manage our personal current accounts and savings accounts. This functionality is typically free for personal use, but a number of banks charge for the privilege.

• Operating model - physical branches or fully online: if your business is cash-heavy, you will need to choose a business account with a local branch, or branches countrywide, to facilitate cash deposits (and try to make sure that cash deposits are cost-friendly!). Alternatively, you can choose an online business account that provides cash deposit solutions.

• Simplicity, or not: having immediate access to your payments received, or even having a business account set up within minutes instead of weeks (banks can take 1 to 4 weeks to set up your account and request more information than HMRC when you’re paying taxes), can make a huge difference to how you operate, and how motivated you stay.

With all this in mind, opening a business account in the UK becomes clearer, and for small businesses and sole traders, choosing to open a business bank account online, for free, within minutes, seems like a smart idea. As it happens, you can do all this and more with SumUp.

Applying for a business account online in 4 steps

When starting a small business, momentum is key. It’s the driving factor that will determine if you chase your idea and push it to the limit, or if you get bogged down in paperwork and red tape.

In the UK, everything is in place for you to start your small business or to become a sole trader quickly and efficiently. There are online platforms to register your business, and taxes can be filed without too much hassle. So why are business finances so complicated? Surely waiting weeks for an account to be opened is an outlier, right? 

At SumUp, we’ve made business accounts a streamlined process. Setting up a business account is a 4-step process that takes minutes:

Step 1: Fill in some details about your business.

Step 2: Go through a quick ID verification process. This is done digitally and takes minutes in the majority of cases.

Step 3: Once verified, your account is open and you can top up your balance and start making transfers.

Step 4: This is a bonus step - you’ll receive a free Mastercard in the post, but while you wait you can use Apple Pay or Google Pay to make any business payments you need.

Having simple processes in place allows us to focus on what's important for small businesses. Providing flexible products with full functionality is what we aim to achieve throughout our ecosystem. 

Here are some of the key benefits you’ll get when opening a business account online with SumUp:

• 100% digital, no paper sign-up process

• Account number available in minutes, located in the UK

• Free account with free transfers, and 3 free ATM withdrawals. We only charge a small transaction fee if you withdraw more than 3 times per month, or if you decide to take out your business funds in euros while on holiday on the continent.

• Fee-free Direct Debits

• No minimum balance requirements to maintain the account

• Super-fast bank transfers, thanks to the Faster Payments scheme in the UK

Most high-street banks or digital banks offer near-instant transfers but at an extra cost. Some don't offer them at all, making you wait for your money, and charging you for the privilege.

Make smart business decisions today by opening a business account online with SumUp and say goodbye to bank fees.

A powerful ecosystem for anyone starting a small business

Choosing to partner with SumUp doesn’t stop with a business account. In fact, SumUp started out providing payment terminals. After becoming an industry leader with smart card readers for sole traders and small businesses, we understood that you need more than just a great device to grow your business.

Our ecosystem is still growing, but we’re already proud of our extended range of products and services. When you sign up with SumUp, you’re able to set up a business account and get a business Mastercard, and open your small business up to a range of options, all there for when you’re ready.

Our payment terminals can be taken on the go, or sit on a counter next to your point-of-sale solution (we’ve also got one of those), working on both Wi-Fi and your mobile network to handle card payments in all situations. 

Once you’re confident enough to expand your geographical footprint, give our free online store builder a go, along with online payment links and invoicing solutions, all free to set up and start using.

Starting a small business is daunting, but finding the right business partners can make a world of difference. Create an account with SumUp today, and start finding the solutions to your small business’s needs.