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Do you need a business current account for a limited company?

  • 6 min read

At the time of writing, there is currently no legal requirement that states a limited company must possess its own business current account. 

That doesn’t mean however that business owners of limited companies should not consider opening one. 

Having a separate business bank account for your limited company makes it easier to properly and successfully manage your business finances and transactions. It also boosts your business’s credibility, as having your business’s income directly enter your personal account could send an unprofessional message to your clients or potential investors.

There is a lot of great innovation in business banking in the UK. For example Anna Money combines invoices, accounting and tax in one business current account. You get a debit card and all the standard bits. There are also innovators like Revolut and Transferwise who focus more on Foreign Exchange.

Without a separate current account, business owners will also find their annual accounting and tax returns taking much longer to prepare due to not being able to differentiate company finances from personal ones. Additionally, you risk making mistakes such as miscalculating turnover, incorrectly recording transactions and even accidentally using business funds for personal use. 

Mistakes like these could land you at the risk of suffering financial penalties from HMRC or even being audited. 

Why a limited company does need a bank account

There are a number of beneficial reasons as to why a limited company should register a separate business current account and directors must consider these. 

Some of the most important reasons are as follows:

  • If your business did not start as a limited company but reaches a point at which it needs to be transferred, the formal paperwork required in the process can become confusing (or may even cease to exist) due to the fact that there is no separation between business assets and personal assets. HMRC could argue the business has not been transferred, leaving your company at risk of legal issues like higher tax rates. In addition, the company may struggle to raise invoices, especially if things like VAT are now being claimed as suppliers may be slow to update information, and customers may be unclear that the sale is now on behalf of a company. 
  • If a director’s own bank account is being used as a company business current account, the director will be seen to be holding money on behalf of the company. In the eyes of the law, this is then seen as borrowing money from the company – even if it is in credit. Under the Companies Act of 2006, this is illegal and can lead to tax liabilities like those of Section 455 tax – a corporation tax which relates to tax accrued on money being held by a company – as well as National Insurance taxes if there are employee loans.  
  • Should the business be the subject of a tax investigation by HMRC, all of its records and bank accounts will be analysed and reviewed. If a personal bank account is discovered to have been used for company transactions, HMRC are within their rights to extend their investigation into the owner of the bank account. This means potentially accruing extra costs while both your business and personal assets are investigated. 
  • HMRC may not allow corporation tax relief on both bank interest and charges that have been paid by the account, because the company’s name can not be associated with either the interest or the charges. 
  • In a personal bank account, identifying where the directors’ finances begin and where the companies end will cause complication and difficulties should the business become insolvent or run into trouble. If the owner of the account opts to rely on limited liability to prevent being held liable for business debts, this won’t be possible, causing a detrimental effect on personal assets.

How to open a current account for a limited company

In the UK, opening a business current account for a limited company is as straightforward as opening a personal current account. This is provided the company has a director or shareholder who is a UK resident.

Whereas previously directors may have had to visit banks in person to open accounts, nowadays the onboarding process is usually conducted online via websites and free apps like MachFast’s, where directors can both register their business and open a business current account in just a few clicks.

Read More: How do I open a Business Current Account?

Be aware that some traditional high street banks may still require in-person visits. These are mostly only to confirm account signatories – that is those who are authorised to access and use the account – as well as official proof of identification and a UK-registered address.

It is also worth noting that if at any point you have been declared bankrupt, or disqualified as a director, it is unlikely that you will be authorised to open a business current account on behalf of a limited company.

Choosing the best current account for a limited company

When it comes to choosing the best business current account for a limited company, it ultimately comes down to a case of choosing the right one for your company. In order to make sure you’ve done this, take these factors into consideration when doing your research: 

  • Account charges and fees: Will they be suitable for your business’s cash flow?
  • Accountant led recommendations: Accountants are able to spot good banks from bad banks a mile away. Trust their expertise and experience.
  • Reviews from other customers: Just like when purchasing anything, it’s best to ensure you’re getting the right deal.
  • Mobile or telephone banking services: It may be implausible for you to run your business from behind a computer, or maybe you’ll need to actively conduct your business’s finances on the go. If this is the case, look for good mobile or telephone banking experiences. 
  • Online banking services: Just like mobile banking services, if your local branch is inconvenient to reach from your business’s location, you’ll need to be able to get online. 
  • Interest rates: Poor or fluctuating interest rates will impact your borrowing rate and return on savings, so make sure you research them thoroughly first to evaluate whether they rise, fall, or remain the same.
  • Any additional incentives offered: It’s always nice to get a bonus. Some banks offer cash in hand for opening an account, cashback schemes on certain amounts you earn, or even cash for recommending other people. 

In Conclusion:

Whilst it is not a necessity to open a business current account for a limited company, there are distinct advantages of doing so and directors should consider the many benefits.

With MachFast’s app, directors can open a business current account in seconds with no fuss, no hassle and no complication. Download the MachFast app and see for yourself just how easy forming a business can be. 

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