Summary of whether you need a business bank account
- A limited company must have a business bank account, and GOV.UK says there must be a clear division between company and owner finances.
- Sole traders and normal partnerships are not legally required to have one.
- A sole trader must still keep records of business income and expenses, and a mixed account makes that harder.
- In the example, one account for everything means checking 1,080 entries a year to find 456 business ones.
- Money a director takes from a company account that is not pay, dividends or expenses is a director's loan.
- An unrepaid £2,000 director's loan could bring a company charge of £715.
Opening a business bank account is one of the first decisions a new owner makes. Some assume the law requires it, and others assume it is optional for everyone. The answer depends on how the business is set up.
This page names no providers and quotes no fees. The numbers in the examples are assumptions chosen to show the method, apart from the director's loan rate, which comes from GOV.UK.
Do you have to have a business bank account?
It depends on the structure of the business.
| Structure | Required by law? | What to know |
|---|---|---|
| Limited company | Yes | GOV.UK says there must be a clear division between company and owner finances |
| Sole trader | Not required by law | You must keep records of business income and expenses, and of personal income |
| Normal partnership | Not required by law | Separate accounts make the partnership's accounting simpler |
Business.gov.uk says certain types of business, such as limited companies, must have a business bank account. It says sole traders and normal partnerships are not legally required to, and adds that keeping personal and business money separate makes accounting simpler.
Should a sole trader open one anyway?
For tax, a sole trader and the business are the same person. GOV.UK says you must keep records of business income and expenses for your Self Assessment return, as well as records of your personal income. HMRC can charge a penalty if records are not accurate, complete and readable.
A personal account can hold both, but the business entries then have to be picked out at tax time. Check also that your bank's terms allow business use of a personal account.
Worked example
A sole trader with 38 business entries and 52 personal entries a month
One account for everything
- Entries a month
- 90
- Entries in a year
- 1,080
- Business entries to find
- 456
1,080 entries to check at tax time
A separate business account
- Business entries a month
- 38
- Business entries in a year
- 456
- Personal entries to sift out
- 0
456 entries, all business
624 personal entries to sift out each year with one account. The entry counts are assumptions chosen to show the method
With one account the owner checks 1,080 entries a year to find 456 business ones. With a separate account, every entry in it is already a business entry. The saving grows with the number of transactions, and it makes it easier to see what the business earns and spends.
A separate account does not change what you owe in tax. It makes the records easier to keep and to check, and it makes it easier to see how much of your cash is business money.
What goes wrong for a limited company?
A limited company is a separate legal entity from its owners. GOV.UK says there must be a clear division between the company's finances and those of its owners and directors. It calls a business bank account the simplest way to keep them separate.
If a director takes money from the company that is not pay, dividends or expense repayments, GOV.UK calls it a director's loan. It has to be recorded, usually in a director's loan account, and you may have to pay tax on it. If the director is also a shareholder, the company may have to pay tax as well. Our debt article covers how the charge works.
Worked example
A director settles a £2,000 personal bill
Paid from the company account
- Amount
- £2,000
- Recorded as
- A director's loan
- If still owing at the due date
- 35.75% charge
£715 possible company charge
Paid from the director's own account
- Amount
- £2,000
- Recorded as
- Nothing in the company
- Company charge
- None
£0 company charge
£715 is 35.75% of £2,000, for a loan made from 6 April 2026 to a director who is also a shareholder. Repayment timing changes the position, so check with your accountant
The records matter too. GOV.UK says a limited company must keep records of all money received and spent, and bank statements are among the supporting records it lists. They must be kept for six years from the end of the last company financial year they relate to, and HMRC can fine a company £3,000 for not keeping accounting records.
What do you need to open one?
Business.gov.uk says you must usually be 18 or over, a UK resident, and a sole trader, company director or partner. A limited company also needs its Companies House registration documents and certificate of incorporation, the company registration number and incorporation date, its registered address and details of all directors.
Our documents article covers what to prepare, and our fees article covers what an account costs over a year. Adding a second director or signatory is covered in our signatories article.
What should an owner do this month?
- Check your structure. A limited company needs a business account. A sole trader can choose.
- Open a separate account if you trade through a personal one. Tell your bank first if you plan to keep using a personal account for business.
- Pay business costs only from the business account. Move money out in clear, recorded steps.
- Record every payment a director takes that is not pay, dividends or expenses. That is a director's loan.
- Keep your records. Bank statements, invoices and receipts, for six years in a company.
Keeping money separate also makes it easier to see how the business is doing. You can see how similar businesses near you are doing with our free competitor report, and the IQ Money calculators let you put your own figures into the sums.
Questions owners ask
Do I legally need a business bank account?
A limited company must have one. Business.gov.uk says sole traders and normal partnerships are not legally required to have a business bank account, although keeping personal and business money separate makes accounting simpler.
Can a sole trader use a personal account for business?
There is no rule against it, but check your bank's terms allow business use. You still need accurate records of business income and expenses, and GOV.UK says HMRC can charge a penalty if records are not accurate, complete and readable.
Does a limited company need a separate bank account?
Yes. GOV.UK says there must be a clear division between the company's finances and those of its owners and directors, and a business bank account is the simplest way to keep them separate. Business.gov.uk says limited companies must have one.
What is a director's loan?
GOV.UK says it is money you or close family get from your company that is not pay, dividends, expense repayments or money you previously paid in. It must be recorded, usually in a director's loan account, and you may have to pay tax on it.
How long must a limited company keep its records?
GOV.UK says six years from the end of the last company financial year the records relate to, and longer in some cases. It says HMRC can fine a company £3,000 for not keeping accounting records.
What do I need to open a business bank account?
You must usually be 18 or over, a UK resident, and a sole trader, company director or partner. A limited company also needs its Companies House registration documents and certificate of incorporation, the company registration number and incorporation date, the registered address and details of all directors.
Should I open a new account when I form a limited company?
Yes. The company is a separate legal entity, so it needs its own business bank account. Keep the earlier sole trader records separate from the company's.
Keep reading
Sources
- Getting a business bank account (business.gov.uk). Who must have one and what you need to open one.
- Company and accounting records (GOV.UK). Keeping finances separate and how long to keep records.
- Director's loans (GOV.UK). What a director's loan is and how it is recorded.
- Self-employed records (GOV.UK). The records a sole trader must keep.
- Keeping your pay and tax records (GOV.UK). Penalties for inaccurate records.
- Close companies, loans to participators (HMRC manual, GOV.UK). The 35.75% rate.
This article is general information for owners of UK businesses. The entry counts in the example are assumptions chosen to show the method, and your own will differ. Rules and tax rates change. It is not tax, legal or financial advice. Speak to a qualified adviser about your own circumstances.
