Our free business bank account guide explains everything you need to know about banking for small businesses. Among the many topics it deals with, the guide explains why it is required to have a separate business bank account for a limited company. It thoroughly explains the need to keep personal finances separate from those of the business and its directors. Use this guide to determine whether or not you need a separate bank account and, if so, the best way of setting it up. This is an essential guide for anyone starting a brand-new business as a contractor or freelancer.
We generally advise all self-employed individuals to maintain business bank accounts in order to keep their financials separate. Having said that, it is required for any contractor wishing to establish a limited company. The law requires limited companies to be materially distinguishable from the finances of owners and directors. Why? Because a limited company is considered, under the law, to be a separate and unique entity. The company is, in essence, a legal person separate from directors, owners, and shareholders. All finances need to be attributed to that legal person through a separate bank account.
The first step in setting up a business bank account is finding a bank you are comfortable doing business with. The new contractor may be encouraged to use the same bank handling personal accounts – this may be a wise decision in some cases, a poor decision in others. It is up to the individual to compare the features and costs of multiple business bank accounts in order to determine which is best.
Contractors must consider the following:
How you use your business bank account should give you a clear idea of the kind of service you will need and expect. Different types of businesses use banking in different ways, so be sure to think this out carefully. You may use your bank account to:
The difficulty for contractors is finding a bank with services specifically geared to their types of work. Simply put, your average high street bank offers generic business accounts that they expect all of their customers to make do with. A generic account may not work well for the contractor with a unique business model.
While comparing business bank accounts, there are a couple of important things to consider. The idea is to spend as little on banking as possible, thus increasing your profit. Here are some of the specifics:
Comparing bank accounts side-by-side is of vital importance, but there is one last thing you should do before making a choice: ask other contractors their opinions. If you do not know any other contractors, your ICP accountant might be able to give you a recommendation or two.
Once you have chosen your bank, the next step is to set up your account. Be aware that you will need to establish your identity to prevent money laundering AND prove the existence of your limited company.
Where the former is concerned, your bank will let you know what is acceptable for personal identification. A passport would be just one example. Where the latter is concerned, you will need to supply the bank with all of your registration documents including copies of your memorandum and articles, your certificate of incorporation and shareholder information.
The bank is required by law to carry out a mandatory check on your identification and your company history before approving your loan application. Approval can be obtained in as little as a week or as long as several months. You do not necessarily need a business bank account to begin accepting work, but be very careful about going down this road. Transactions should be conducted in cash, and you should keep meticulous records.
An accountant can help streamline the process by helping you put together the documentation you need to get your account opened as quickly as possible. Some accountancy firms even have working relationships with existing banks, making it possible for a contractor account to be established within 7 to 10 working days. Of course, such accounts may not represent the best deal. It is still worth investigating several different options prior to making a choice.
Establishing a limited company requires the contractor to have a separate business bank account. At ICP, we recommend a separate account even if you are not working through a limited company. We would be happy to advise you regarding finding and opening a bank account to best serve your business needs.