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.

Who offers free UK business bank accounts?

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

However, 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 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 for both individuals and businesses, meaning you can set up a business bank account completely fee-free.

You will get a Sort Code and Account Number, and the account will be in your business’s registered name – just like a more expensive account from a ‘traditional’ bank like Santander or Lloyds Bank.

You can then send payments to suppliers, receive payments from clients, and transfer money between your other bank accounts completely free of charge. You can even send and receive money in other currencies for greatly reduced fees compared to those of traditional banks.

TransferWise are also currently rolling out their Business Debit Card, allowing you to make online payments.

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, but 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.

TransferWise are currently in the process of rolling out their business debit card, allowing you to make online payments. This does mean your account won’t get a business debit card right away, as they are currently opening it up to a small sub-section of existing customers, and haven’t yet announced when they will be opening up this facility to new accounts.

There are plenty of traditional accounts around, 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?

TransferWise has just launched its new business debit card and is slowly rolling it out to its business customers.

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.

As of September 2018, TransferWise are currently opening up their Business Debit Card to a small sub-section of existing customers, and haven’t yet announced when they will be opening up this facility to new accounts.

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!