Company bank account and contractor banking

Introduction

When you start your own company for the first time, besides finding work for your first contracting role through a recruitment agency or directly with a client, you will also need to open a company bank account. All limited company contractors need a bank account for their business as a company is a separate entity and needs its own bank account. Once you or your accountant have formed your new company and it is officially registered, you will then be in a position to apply for an account for your new business.

We have a first timer’s guide to contracting in the UK which gives a full overview of what to consider for your contracting business when you start out. We would also recommend that you choose a good accountant from the outset and also have a read of contractor tips.

As mentioned, your company is a legal entity in its own right, and as such, you cannot use your personal bank account to do business banking.

When you operate as a sole trader you are not a separate legal entity from your business. Therefore, you do not need a separate business bank account. However, you may choose to have a separate business account, especially if there will be a lot of business transactions through here.

When you work through an umbrella company as one of their PAYE employees, you are a regular employee and do not need a business bank account.

Open a company bank account for the first time

When you open an account for the first time, your company needs to be incorporated. Once it is, and you have the company documents, you can apply for a new business account.

If you choose the bank that you currently bank with on a personal basis to set up your company bank account, the process is likely to be much more straightforward. What’s more, it will be processed much quicker in most cases when you compare this to opening a business account with a bank that you have not banked with before.

Nowadays, you can also apply online when you open an account. This will save time and be easier, compared to trying to make and attend an appointment at the bank.

Finally, most banks will, at the outset, offer a free company bank account for business banking for the first twelve months. Some now even offer twenty-four months free business banking. Once your free period is up, there is normally a charge each month of around £6.

When you operate as a sole trader you are not a separate legal entity from your business. Therefore, you do not need a separate business bank account. However, you may choose to have a separate business account, especially if there will be a lot of business transactions through here.

Are you looking to consider a change in your company bank?

Interest rates are and have been low for several years now. Therefore, it may be wise for company contractors to check a website that can compare the latest deals site, such as:

https://www.money.co.uk/current-accounts/business-bank-accounts

https://www.which.co.uk/money/banking/bank-accounts/business-bank-accounts-a6ncf6r8jqz1

When you make a comparison, it will allow you to see which banks offer the best deals at the current time in terms of a free company bank account, and what interest rates are currently on offer. When you have this information, you may consider opening a business bank account with one the better deal.

FreeAgent digital online software

Many contractors and small business owners opt use some online software called FreeAgent, to keep their company book-keeping records on. This usually costs about £30 a month if you run FreeAgent yourself or about half of this price if your accountant runs this for you and they have a deal with FreeAgent.

If you opt to use FreeAgent, the banks Natwest, RBS and Mettle will pay your company’s FreeAgent licence fees for the life of your company. Therefore, there is a financial saving here of at least £180 pa.

Starling Bank

Please note, Starling Bank are now a new top choice for UK small businesses and contractors for a company bank account.  They offer a great Starling bank business account and this is one of the best business bank accounts for contractors. However, they do not yet offer a free FreeAgent licence like the banks mentioned above. However, FreeAgent will integrate with Starling, just like most other banks.

Final thoughts

The above gives a good overview of business banking. If you are starting up for the first time, it is much easier to open a company bank account and go with the bank that you bank with personally. However, you can use one of the sites that compare deals too to see where your bank stands here. Going with one of the banks that offers FreeAgent free is also a very common choice nowadays as there is a good saving to be made here.

Link to Contractor Advice UK group on LinkedIn   click here

Published On: March 24th, 2021 / Categories: First timer guide, Other Guides, Starting Up Your Own Company /

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One Comment

  1. Free limited company January 11, 2022 at 7:35 pm - Reply

    Opening a company account with a bank also has other additional perks. For example, you can usually obtain free banking for at least a year as a new business. Also some banks even offer new clients special deals on accounting software to use in their businesses. Lastly, as regards this point, it may be easier for you to obtain a business overdraft or loan if you have a company bank account.

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