Choosing the right bank account is something all businesses need to do - some more than once (and you'll find some advice on how to switch in our separate guide on business banking for established businesses). But ideally, you want to identify one that you'll stay with, and that will support you as your business grows.
Since we know her well and always value her views, we asked experienced small business banking expert and growth adviser at Natwest, Sharniya Ferdinand, to share her advice on selecting the right bank account, including what to expect and what to look out for.
The right time to open an account
You have a great business idea. You've researched your market and spoken to your target customers who've validated your idea. And you've ultimately concluded that your business has a sustainable model. So, when is the right time to open an account?
To make the most of your startup business banking offerings, it is best to open your new business account before you're ready to receive your first invoice(s).
Indeed, for many businesses, getting a bank account sooner is advisable, especially if you're planning to register for VAT and start reclaiming it on your expenses or to claim R&D tax relief from HMRC. (Take a look at our all about VAT guide for more information about why when to VAT-register your business.
For sole traders and straightforward limited companies, the process of opening (and switching) an account should be relatively quick.
What a bank will offer
Most high street banks will offer a period of free business banking. Usually this free period will last 12-18 months. After the free period has ended, your business bank account will be subject to a monthly service tariff made up of separate transaction fees. If the minimum monthly charge is not met through your transactions, you'll be charged the minimum monthly amount, which will typically range from £5-£7 per month and could be higher, depending on the terms of your account.
Your free banking period will usually include:
- No minimum monthly tariff for having a business bank account - this will include any associated costs included within the service charge (e.g. electronic, cash and cheque payments etc.)
Your free banking period will not usually include:
- Fees for specialised payments such as CHAPs/International Payments, which carry a separate charge.
You may also be able to apply for a business overdraft and business credit card, and these may sometimes carry additional costs during the free banking period. When choosing your bank, check if the startup package includes an offering for a free business credit card and business overdraft.
Opening an account
You must be aged 18 and over to be eligible for a business bank account, and you'll need to provide a form of ID as well as proof of your home address.
Identification will be required for all directors and any beneficial owners in a business (usually this is shareholders who have a shareholding of 25% or more of the voting rights in your business). Any authorised signatories you wish to register on the account (for example a company secretary, if you have one), will also need to be identified.
If you're opening a private limited company account, you'll also be asked for your company registration number. You must have registered your company at least 48 hours prior to opening your business bank account. (You can find out more about this in our guide to setting up a limited company. You can do it pretty fast and it's generally not a complicated or costly process.)
What do you need for proof of identity and address?
For proof of identity, these forms of ID will be acceptable:
- EU national ID cards
- Driving licences (generally only if issued by the UK or and EU/EEA country)
- Military ID card
- Original HMRC issued tax notification and correspondence
- ID card issued by the Electoral Office in Northern Ireland
For proof of address, these forms of ID will be acceptable:
- Electoral register search (if you're registered on the electoral roll)
- Council tax bill
- Utility bill (usually not a mobile phone bill)
- Bank/building society statement (showing transactions and not printed from the internet or in-branch)
- Credit card bill (not printed from the internet or in-branch)
- Recent mortgage statement (not printed from the internet or in-branch)
- Original HMRC issued tax notification and correspondence
You won't be able to use the same item on each list. So, for example, you cannot use your UK driving licence as proof of both identity and address.
The application form
Most banks will have an option for opening an account either online or over the phone. There are a few banks who also offer the option to fill in the application form face to face as well.
The application form will gather personal information about you. This information includes:
- Your full name (including title)
- Your contact details (including telephone numbers and email address)
- Your gender
- Your date and place of birth
- Your nationality (If you are not a UK national/resident, you may also be asked for your Tax Identification Number)
- Your home address (you may be asked for previous addresses if you have not resided at your address for at least 3 years)
It will also request information about your business including your business name, business address, registered company number and type of business. You should also expect to be asked for further details about your expected financial activity such as funds coming in and going out. This may seem quite intrusive; however, your bank will need to build a picture of your expected activity for its own security measures and in order to accurately identify any suspicious transactions.
Depending on the structure of your business, you may wish to set specific signing rules for each person that you authorise to interact with your account. For example, you might want to allow only specific amounts to be withdrawn by certain individuals, or you may wish to apply a 'more than one to sign' rule to withdraw amounts over a specific threshold.
Bear in mind, however, that even if you set these types of rule, if you also allow these authorised individuals to have access to your online business banking facility, they may be able to override your restrictions - since they'll probably be able to transfer funds of any amount via the online facility.
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