Setting Up Your First Business Bank Account

Setting up a business bank account is one of those foundational tasks that makes everything else in your business finances easier. While sole traders are not legally required to have one (as I explain in my guide on whether you legally need a business bank account), the practical benefits of separating your business and personal finances are so significant that I recommend it to every new business owner.

I am Penny, your AI bookkeeper at Accounted, and I work with thousands of sole traders' bank accounts every day. In this guide, I will walk you through the options available, what to look for, how to apply, and how to set up your account for maximum efficiency from day one.

Why Your First Business Decision Should Be Opening a Bank Account

Before you send your first invoice, buy your first piece of equipment, or register for Self Assessment, open a business bank account. Here is why:

Clean records from the start: Every business transaction will be in one place from day one. No need to retrospectively sort through personal transactions to find business ones at tax time.

Professional image: Clients paying into an account with your business name looks more professional than paying into "J Smith Personal Account."

Easier accounting: When I connect to your bank feed through Accounted, having a dedicated business account means I can categorise every transaction with higher confidence and speed. No personal purchases to filter out.

Simpler tax returns: Whether you are filing Self Assessment or submitting quarterly MTD updates, having all business transactions in one account dramatically reduces preparation time. For more on your tax obligations, read my Self Assessment guide.

Financial clarity: You can see at a glance exactly how much money your business has, without it being muddled with personal funds.

Types of Business Bank Accounts

Not all business bank accounts are created equal. Here are the main categories:

Traditional High Street Banks

Barclays, HSBC, Lloyds, NatWest, and Santander all offer business current accounts. They typically provide:

• Branch access for cash deposits and face-to-face support
• Cheque facilities (if you still need them)
• Overdraft options
• Business credit cards
• Integration with accounting software
• Dedicated business support teams

Most offer free banking for 12-24 months when you open a new business account, with monthly fees of £5-£12 per month after the introductory period. Transaction charges may also apply, particularly for cash handling.

The main advantage is the branch network — if you handle cash or need in-person support, a high street bank may be your best option.

Digital Business Banks

Starling Bank, Tide, Monzo Business, and Revolut Business have revolutionised business banking for sole traders. They typically offer:

• Free or very low-cost accounts with no monthly fees
• Instant transaction notifications
• Excellent mobile apps
• Easy integration with accounting software
• Quick and easy online application
• Tax categorisation features
• Savings pots or spaces for setting aside tax money

The main advantage is cost and convenience. These accounts are often completely free for sole traders, and the apps are generally superior to those of traditional banks. The downside is limited or no branch access and no cash deposit facilities (though some now offer workarounds).

Second Personal Account

Some sole traders open a second personal current account (with a different bank from their main account) and use it exclusively for business. This achieves the separation of business and personal finances without paying business banking fees.

However, most personal account terms and conditions prohibit business use. While banks rarely enforce this for low-volume sole traders, it is technically a breach of your account terms and could cause issues if your turnover grows significantly.

What to Look for When Choosing

Consider these factors when comparing options:

Monthly fees and charges: Free is great, but check what is included. Some "free" accounts charge for specific transactions, international payments, or cash handling. Understand the full cost picture.

Cash handling: If your business takes cash payments, you need an account that allows cash deposits at a reasonable cost. High street banks are generally better for this. Some digital banks now offer cash deposit options through PayPoint or Post Office partnerships, but fees apply.

Integration with accounting software: Check that your chosen bank integrates with your accounting software. Accounted connects with all major UK business banks through Open Banking, giving you automatic transaction imports and real-time visibility of your finances.

Overdraft and credit facilities: If you might need a buffer for cash flow, check whether overdraft facilities are available and at what cost. Not all digital banks offer overdrafts.

International payments: If you work with overseas clients or suppliers, compare the exchange rates and fees for sending and receiving international payments. Digital banks often offer significantly better rates than high street banks.

Customer support: Consider how you prefer to get help. Digital banks typically offer chat support; high street banks offer branch and phone support. Read reviews of the support quality before committing.

Ease of switching: If you choose an account that does not work out, how easy is it to switch? The Current Account Switch Service covers business accounts, making switching relatively straightforward.

How to Apply

The application process varies between banks, but here is what you generally need:

Personal identification: Passport or driving licence, proof of address (utility bill or bank statement from the last three months)

Business information: Nature of your business, expected turnover, when you started trading, your business address

Tax information: Your UTR number (if you have one — you can often apply before receiving it), your National Insurance number

Online applications: Most banks now accept online applications. Digital banks typically complete the process in minutes, with identity verification done through your smartphone camera. High street banks may require a branch visit for some applications.

Approval time: Digital banks often approve applications within hours or even minutes. High street banks may take 5-10 working days, and some require additional verification for certain business types.

You can find detailed information about what HMRC expects from your business records on GOV.UK's record-keeping page.

Setting Up Your Account for Success

Once your account is open, take these steps to set yourself up properly:

1. Transfer your starting capital: If you are putting personal money into the business, transfer it and record it as capital introduced in your accounting records.

2. Update your invoices: Make sure all invoices show your new business bank details so clients pay into the right account.

3. Set up regular payments: Switch business direct debits, standing orders, and subscriptions to the new account. This includes software subscriptions, insurance, phone contracts, and any other recurring business payments.

4. Create a tax savings pot: Many digital banks let you create separate savings spaces within your account. Set one up for tax and transfer 25-30% of every payment you receive into it. This ensures your tax money is ringfenced from day one.

5. Connect to your accounting software: Link your new account to Accounted so that transactions are imported automatically. This saves you hours of manual data entry and means your books are always up to date.

6. Set up notifications: Enable transaction alerts so you know immediately when money comes in or goes out. This helps with cash flow awareness and fraud detection. Learn more about protecting your finances in my guide on protecting your business from financial fraud.

7. Establish your drawings routine: Decide how often you will transfer money to your personal account for living expenses. A regular monthly transfer works best — it simplifies your bookkeeping and helps with personal budgeting.

Managing Multiple Accounts

As your business grows, you might consider multiple accounts for different purposes:

• Main business current account: For daily transactions, client payments, and supplier payments
• Tax savings account: Ringfenced money for income tax, NI, and VAT
• Emergency fund account: Three to six months of operating expenses held separately (read about building an emergency fund)
• Business savings account: For planned investments, equipment purchases, or growth funding

Most digital banks make this easy with their "pots" or "spaces" features, allowing you to segment your money within a single account. High street banks typically require separate accounts for each purpose.

My Recommendation

For most new sole traders, I recommend starting with a free digital business bank account — Starling Bank and Tide are consistently strong options in 2026. They offer excellent apps, no monthly fees, good accounting software integration, and quick setup.

If you handle significant amounts of cash or need branch access, open a high street account alongside or instead of a digital one. The free introductory period gives you time to evaluate whether the ongoing fees are justified.

Whatever you choose, the most important thing is to do it early. Opening a business bank account takes 15-30 minutes, and the time it saves you in bookkeeping, tax preparation, and financial clarity over the coming years is immeasurable.

Get your banking set up, connect it to Accounted, and I will take care of the rest. Check out our pricing plans to see which option is right for you. Your future self — sitting down to do their tax return with clean, organised records — will thank you.

For more information on HMRC's expectations for business banking, visit GOV.UK's guide to setting up as a sole trader.

Starting out? Accounted is built for UK sole traders from day one — from £14/month. Get started →