How to set up a free UK business bank account

How to set up a free UK business bank account

If you are planning on starting a business, one of the most important things you will need is a bank account.

Can’t I just use my personal bank account?

While sole traders can technically use their personal bank accounts for business purposes, it isn’t recommended. As a business owner, it’s your responsibility to keep track of what your business has spent and earnt, and you will need to provide this information to HMRC once a year in your Self Assessment tax return.

It’s easy to think that you’ll be able to keep track of which money has gone on business purposes and which is solely personal, but it’s very easy to lose track. Was that £12.99 transaction from last May a new set of folders, or a late night takeaway?

With a separate business bank account, you know that everything in the account is to do with the business – every penny coming in is income for your business, and every penny going out is an expense.

Plus, if you run or are about to start a Limited Company, it’s usually a legal obligation that you have a separate company bank account. Your business is an entirely separate legal entity, so money should be going in and out of an account registered in the business’s legal name.

Unfortunately, the downside of a business bank account is the fees. While many business bank accounts have fee-free introductory periods of 1-2 years, eventually you will find yourself paying monthly fees, which can add up to hundreds of pounds a year. That’s not much for a big business, but if you’re a small business then it’s certainly money you will want to save.

Thankfully, technology is coming to the rescue. Technology companies have been looking to “disrupt” old-fashioned industries with new and innovative business models, and banking is one of those industries. There are now many digital-only banks and companies offering business bank accounts without monthly fees, and with the added bonus of greatly reduced fees for things like international transfers and currency exchanges.

How much is a UK business bank account?

The vast majority of UK banks charge fees for their business bank accounts. While many offer free introductory periods, these typically only last from 6 months to a year, and after that you’ll be hit with monthly fees.

Watch out for electronic payment fees as well. While it seems unbelievable in 2020, some banks charge you an additional fee for making online payments, which can soon add up.

If you’re a cash based business or still receive payments by cheque, you’ll need to watch out for additional fees here too. We haven’t included the costs for cash or cheque handling, but you can find them readily available on the banks’ websites.

There are likely additional fees for more complex services such as international payments and CHAPS payments. If you’re making international payments, a TransferWise Borderless bank account will likely save you money compared to any of the options offered by traditional banks, and more information on that is below.

Please note, the fees below were correct as of July 2020 and we take no responsibility for out of date information. We encourage you to double check the rates on the banks’ own websites.

However, if you don’t want to pay a monthly fee, read on below to find out which banks offer free business bank accounts, and how to get yourself a free virtual business bank account which can accept payment in multiple currencies.

Business Bank AccountMonthly FeeFree Introductory PeriodElectronic Payment Fee
BarclaysMixed account – £6
E-payments account – £6.50
Mixed account – £0.35
E-payments account – Free
Clysdale Bank£525 months£0.30
Cooperative Bank£730 months (if you maintain a credit balance of £1000)Free for credits, £0.35 for debits, including debit card purchases
HSBC£6.5018 monthsElectronic Banking – Free
Small Business – £0.23
Lloyds Bank£7.0012 months for new and switching businessesFree
Metro Bank£5 (free if your balance remains above £5,000)Balance over £5000 – 50 free per month then £0.30 each
Balances under £5000 – £0.30 each
NatWestFree18 months£0.35
Revolut BusinessFree
Grow plan – £25
Free account – 5 free local payments, then £0.20
Grow – 100 free local payments, then £0.20
Royal Bank of ScotlandFree24 months for startups (trading less than a year)£0.35
SantanderStandard account – £7.50
123 Account – £12.50
Standard account – Free for startups for 18 months
123 Account – Discounted fee of £5 for startups for 18 months, switchers for 12 months
TSB£5 (free if your balance for that month is above £10,000)25 monthsFree
Ulster Bank£8 per quarter18 months (if your business is registered in Northern Ireland and less than 12 months old)£0.43
Yorkshire Bank£6.5025 months£0.30

Who offers free UK business bank accounts?

Some new online-only banks offer business bank accounts completely free.

Enter, TransferWise. The company originally aimed to make transferring money between currencies quicker and cheaper, but has now expanded to offer an ever-growing range of banking services.

You can now open ‘virtual bank accounts’ in GBP, USD, AUD, NZD and EUR. Don’t be put off by the term ‘virtual’, as you get a full set of account numbers and can use the account to send and receive money just like you would with a ‘traditional’ bank account.

You can open both individual and business bank accounts, and just need to provide identification such as your passport and business registration documents to prove you’re who you say you are.

Their accounts are completely free to set up for both individuals and businesses, meaning you can set up a business bank account with no ongoing monthly fee.

You will get a Sort Code and Account Number, and the account will be in your business’s registered name – just like an account from a ‘traditional’ bank like Santander or Lloyds Bank. There is now a one-off charge of £16 to get these bank details – but unlike a traditional bank, you can get bank details for GBP, USD, EUR, AUD and NZD.

You can then send payments to suppliers, receive payments from clients, and transfer money between your other bank accounts. This used to be free of charge, but there’s now a fee of £0.65 to send money to another bank account – but it’s completely free to receive money.

You can even send and receive money in other currencies for greatly reduced fees compared to those of traditional banks.

You also get a free Business Debit Card, allowing you to make online payments in any currency, and you can use it across the world. If you’re spending abroad in USD$, EUR€, AUD$ or NZD$, it’ll automatically take the money from the relevant currency balance if you have one, otherwise it’ll convert it at their usual cheap rate.

You also get free ATM withdrawals up to £200 per month, with withdrawals over that amount incurring a charge of just 2%.

Is a digital or ‘virtual’ business bank account right for me?

If you’re a digital-only business, and don’t want to accept cheques or cash deposits, a digital bank account like TransferWise Borderless bank account may be the perfect option for your business. This makes them ideal for freelancers and digital nomads, as well as more traditional businesses who only accept their clients paying them via bank transfer.

So what are the downsides? These aren’t “full” bank accounts, so there are a few things you won’t be able to do.

Via TransferWise’s GBP bank account, you can make payments via Faster Payments (FPS), BACS and CHAPS. The only types of payments you can’t yet make are International Wire or SWIFT payments.

In addition, you cannot currently set up direct debits from your Transferwise GBP bank account.

While you cannot receive international payments from outside of the UK into your GBP account, you can set up additional accounts in EUR, USD and AUD if you want to send or receive payments to and from clients in Europe, the USA and Australia. You can then transfer this money into your GBP account, paying a very small currency exchange fee (and much less than the currency exchange fees charged by traditional banks!).

Additionally, one of the few downsides to TransferWise is that they don’t have physical branches. If you do think you’ll need to accept cash or pay in cheques, then you will probably still need a traditional business bank account to be able to handle these types of payments.

There are plenty of traditional accounts around, as you can see in our list above, and it is definitely worth some time shopping around as the fees can vary greatly. MoneySavingExpert is the best place to find the best deal on a traditional business bank account.

Will I get a debit card?

A TransferWise borderless account also comes with a lovely blue and green debit card, which works exactly like a debit card with a “traditional” bank.

You will be able to use the card just like any other business debit card, using it for business-related purchases whenever you need, whether that’s online or in a bricks-and-mortar shop. You can use it to pay for purchases or withdraw up to £200 for free every 30 days.

Another added advantage over traditional banks is that you can store currency in GBP, USD, EUR and AUD, and spend the currencies in your account anywhere in the world that accepts Mastercard.

There are no additional fees for storing these additional currencies, and only very small fees for converting the money between each currency.

How do I sign up?

You can sign up at the TransferWise website here. If you’ve got any questions about how the accounts work, leave a message below and I’ll do my best to help!