Share This Guide, Choose Your Platform!
Introduction
When you look for business banking for independent contractors, what should you consider? Notably, when you start your own company for the first time, there will be various tasks to complete. Besides finding work for your first UK contracting role through a recruitment agency or directly with a client, you will also need to open an independent contractor bank account for your UK limited company. All limited company contractors need to open a company bank account for their business to do their contractor banking. However, what is the best business bank account for UK contractors?
It is important to bear in mind that a limited company is a separate entity from an individual. Therefore, it will require a separate contractor limited company bank account. Once you or your accountant have formed your new company and it is officially registered, you can apply for contractor business account for your new business. Your company will then become a business customer going forward and you can use their contractor banking services.
Therefore, who offers the best business bank account for contractors. In addition, what else is there to consider in respect of the best limited company bank account? When we think about this, you can start by taking a look for the best business current accounts (UK) for contractors.
Initial thoughts on UK contractor banking
Operating as a sole trader
Please take note that you are not a separate legal entity from your business when you operate as a sole trader. Therefore, you do not need a different business bank account. However, you may choose to have a separate business account for your trade. A separate account will likely be the case if lots of transactions are going through the business.
Does a limited company need a business bank account?
Let’s consider does a ltd company need a business bank account. As mentioned earlier, your company is a separate legal entity from you as an individual. Therefore, let’s consider do independent contractors need a business bank account? As a UK contractor, your limited company as a separate legal entity will need a separate bank account.
It is good to know that when you are look to open an independent contractor bank account there are many choices out there. Therefore, let us consider what to look for in a business bank account. As part of your research, it is a good idea to look for a bank which offers business banking for contractors with free access. The majority of UK banks will offer business banking. However, some are better for your contractor account than others. Therefore, we will go over these and consider how to look for the best business bank account for contractors later in this guide.
If you work through an umbrella company as one of their PAYE employees, you are a regular employee. Therefore, you do not need to open a ltd company bank account.
Guide to UK contracting
Besides considering the best bank for business banking, we also have a first-timer’s guide to contracting in the UK. This guide gives a complete overview of what to consider for your contracting business. This is valuable information for you when starting up for the first time. We would also recommend that as a limited company contractor you choose a good accountant from the outset. Please also have a read of our tax tips for UK contractors.
Setting up a company bank account for the first time
General advice for your limited company contractor banking
When you are setting up a limited company bank account for the first time as a contractor, your limited company needs to be incorporated. Once it is, you will have the company documents. As a result, you can look into the current business banking offers. When you decide on a bank you can go ahead with setting up a company bank account.
You can choose the bank that you currently bank with on a personal basis to set up your contractor bank account. Notably, the process will likely be much quicker and more straightforward if you do. This is compared to opening a contractor business account for your limited company with a bank that you have not banked with before.
Bank account for independent contractor
Nowadays, you can also apply online when you open an account for your contractor banking. This process will save time and be easier than trying to make and attend an appointment at the bank.
Most banks will, at the outset, offer a free company bank account for your UK contractor company’s business banking. This usually applies for the first twelve months. However, some banks now offer twenty-four months of free business banking. Once your free period is up, there is usually charge monthly fees of around £6.
As time passes, you will expect that your independent contractor bank account will help you grow your business. Therefore, you will ideally need an account that operates effectively and does not have hidden fees.
It is also recommended that you open a business savings account, in addition to a business current account. You can you use the savings account to save company taxes. This will include saving the Corporation Tax separate from your `normal’ company funds.
The information required when you open a company bank account
When you open the contractor business bank account for your limited company, the bank requires various information from you. Typically, you will need to supply the following details:
- The name and address of all company directors.
- Any previous names and addresses (if you have been at your current address for less than 3 years).
- Your date of birth.
- Your nationality and residency status.
- The details of your personal current account (the sort code and account number).
- Your limited company details, which will include the company registration number and registered office address. However, you should have set up your company before you apply for an independent contractor business bank account.
- Photo ID such as passport, driving licence, etc.
- Proof of the applicant’s (director) home address.
- Your company’s paperwork, such as your Certificate of Incorporation. They may also require a copy of an HMRC letter (HMRC write to you shortly after setting up your company). Alternatively, they may ask for a letter from your accountant. Please check with the bank to which you are applying for their ID requirements.
As part of your application when setting up a ltd company bank account, your choice of bank will also do formal checks. These checks will be with Companies House to verify that the company is real. They will also check who the directors and shareholders are.
Further thoughts on UK contractor banking
Consider a change to your contractor bank account
It may be time to look for a change in your contractor limited company bank account. As part of this change in your contractor banking, you may now be looking for the best UK business bank account. It is worth noting that interest rates were low for several years up until recently. Therefore, it may be wise for UK contractors to do a check online for the best new business bank accounts that are available. When you do this, you can compare the latest deals for a new contractor business bank account. You can perform such checks on websites 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 between the top business bank accounts this allows you to see which banks offer the best deals at the current time, in terms of a free company bank account. This will also show what interest rates are currently on offer. When you have this information to hand, you may consider applying for a business bank account with one of the banks with a better deal.
Customer queries and switching service
Another consideration is how ABC Bank plc deals with customer queries. This is important in terms of waiting times and satisfactory resolution. Having a UK team rather than a call centre in a foreign country is also helpful. Furthermore, you could read their terms and conditions to see what to expect from your new independent contractor banking service.
In addition, like personal accounts, some banks offer an account switch service for limited company bank accounts. You will need to open a contractor business account with the new bank when you switch. As part of your application, you can select an option to show that you are switching accounts. Once the process starts, the bank will transfer over existing payment commitments such as direct debits.
FreeAgent digital online software
Many contractors and small business owners opt to use a digital platform called FreeAgent. This option will help the company to maintain its bookkeeping records online. Nowadays, most banks are compatible with many of the digital platforms available. The digital software will link to your contractor bank account and automatically import the bank transactions.
Most of the popular and well know online software packages cost about £30 a month, if you run this yourself. In some cases, the monthly cost can be half of this price if your accountant runs this for you and they have a deal with the provider.
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, a financial saving here is at least £180 per annum when you open a contractor bank account with one of these banks.
If you use a digital platform to keep your company’s accounting records, it will link to your company bank account. Therefore, you could also ask the bank for a debit card for your new contractor business account, if the bank does not automatically provide this. If you use your business debit card to pay for more of the company’s business expenses, such payments will automatically feed through to your digital software. Using a business card will make recording these transactions slightly easier than if you pay for such business expenses through your own personal card or cash.
Other issues on contractor banking
New banks on the scene for your contractor banking
In 2023, there are the usual high street banks to consider. However, there are now also new online banks to consider in this digital world. When individuals look for the best bank for independent contractors, many will look to these new types of banks.
Starling Bank plc is a new entrant on to the scene, however is this the best bank account for independent contractors? A Starling business bank account is now a new top choice for UK small businesses and contractors for a company bank account. According to many, they are the best bank account for contractors. They offer an excellent Starling business account and good contractor banking services. Notably, this is one of the better banks who offer business banking for contractors and small businesses. Other new banks include Revolut, Monzo, Tide and several others.
Although Starling are one of the best bank accounts for independent contractors, they do not yet offer a free FreeAgent licence, like the banks mentioned above. However, the FreeAgent online software will integrate with Starling, just like most other banks.
What are other choices for the best business bank accounts for contractors? As mentioned, you can search online for the best deals and you can also bear in mind that Natwest, RBS and Mettle will pay the FreeAgent licence fee.
Financial Services Compensation Scheme
All banks in the UK must offer the Financial Services Compensation Scheme. If the financial institution concerned becomes insolvent, this scheme protects the first £85,000 of any savings an account holder owns.
In the UK, all financial institutions, including banks, are regulated by the Financial Conduct Authority. This regulation means the financial institution must adhere to certain standards of practice.
Final thoughts
In terms of contractor banking, the above gives a good overview of how to find a good independent contractor bank account. We also show where to look when you search for the best business bank account for contractors. If you are starting up UK contracting 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 could also use a site that compares deals to see where your bank stands. If you go with one of the banks that offer FreeAgent for free, there is a good saving to be made here. Indeed, this final option is a is a very popular choice.
Link to Contractor Advice UK group on
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.