A guide to business bank accounts for limited companies

Setting up a business bank account is highly recommended and extremely beneficial if your company is trading. Whilst it’s not a legal requirement to have one, a business bank account draws a clear line between your company’s income and expenditure and your own personal finances.

You will find it much easier to keep track of your business finances, maintain accurate accounting records, prepare annual accounts and company tax returns, and work out your own Self Assessment tax returns as a shareholder and director. These tasks will be more challenging if you use a personal bank account for business purposes.

• Our All-Inclusive Package - the perfect way to set up a company
• Guidelines for creating a limited company name
• How to fund a startup in the UK

Aside from the administrative benefits, opening a business bank account in your company name will legitimise your business and provide reassurance to customers, suppliers, and service providers.

How to open a UK business bank account

It is a relatively straightforward process to set up a business bank account for a UK company that has UK-resident directors and shareholders.

Most banks offer a range of accounts to suit a variety of needs. You will be required to provide the bank with copies of your incorporation documents, as well and personal ID and proof-of-address documentation for each director.

You will also be subject to a routine credit check if you are to be named on the account as an authorised signatory.

At 1st Formations, we’ve partnered with a range of UK banks to include a free UK business bank account referral with all of our company formation packages, including a WorldFirst business bank account referral for our non-UK resident customers who set up a company using our Non-Residents Package.

Do I need a bank account for a dormant company?

There is no need to open a business bank account for a dormant company. We would suggest keeping it that way until you start trading. If any money is paid to or from a bank account registered in your company name, your business will no longer be classed as dormant.

We do, however, strongly recommend opening an account as soon as your company starts trading and becomes active for corporation tax.

Will my company still be dormant if I pay cash into my business bank account?

A dormant company should not have any ‘significant accounting transactions’ during its accounting period. This includes money being paid to or from a business bank account. To protect this dormant status, we’d advise against setting up or maintaining a business bank account at the present time.

The only permitted transactions that can be put through the bank account of a dormant company are:

• Payments for shares from the first shareholders
• Paying fees to Companies House for filing annual confirmation statements and changing the company name
• Paying late filing penalties to HMRC

All other kinds of incidental payments should be paid to or from a personal account to avoid forfeiting your dormant status. If and when your company becomes active, you should open a business bank account as soon as possible to keep your company finances in order.

Can I make my business bank account dormant?

Bank accounts are never officially dormant until they are closed. If your company is not trading and is not spending or receiving any money, you should close the account. There is no benefit to having one if you are not trading.

Before doing so, you should ensure all bills and other liabilities are paid, including bank charges and fees. Cancel all direct debits and standing orders, and contact your suppliers and service providers to ensure no further payments will be taken. When you are confident that everything is in order, call or visit your local branch to close the account.

How to add a new director to a business bank account

Every bank has its own regulations and protocols for adding directors and other authorised signatories to business bank accounts. You should contact your bank to determine the requirements for changing your banking mandate.

Generally, however, a new director will be required to visit a branch in person to provide photographic ID and proof of address documentation. The new director will probably be asked to provide the following details:

• Title and full name, including middle name(s) and any previous name(s)
• Residential address
• Date of birth
• Country and city of birth
• Country of nationality and residence
• Position in company
• Previous address details – if at current address for less than 3 years
• Telephone number(s)
• Personal bank account details
• Usual signature

The director’s ID and proof of address documents will be verified. A routine credit check will also be carried out to determine their suitability. Many banks will not approve a new signatory if the individual has adverse credit history. Likewise, any person who is an undischarged bankrupt or disqualified director will not be permitted to act as an authorised signatory on a business bank account.

What to do with your business bank account if you change your company name

If you change your company name after incorporation, you must ensure the title (name) on all business bank accounts and loan agreements is also changed as soon as possible. However, you must wait until Companies House has approved the new name and issued a change of name certificate before doing this.

To change the title of your business bank account(s), you will have to complete a form for your bank. Every bank will provide a different form for this purpose, so you should contact them in the first instance to find out whether this is done online or in-branch.

You will probably have to provide a copy of the certificate of name change, and you may need to notify HMRC if you have any direct debits set up.

Will my business bank account be audited?

Most small and medium-sized private companies qualify for audit exemption, unless their articles of association state that one must be carried out. Shareholders can also request an audit of a company’s annual accounts, which includes business bank accounts.

However, your company will be subject to an audit if at any point in the financial year it is:

• a public limited company (unless it is dormant)
• a subsidiary company that does not qualify for exemption
• an authorised insurance company
• carrying out insurance market activity
• involved in banking or issuing e-money
• a Markets in Financial Instruments Directive (MiFID) investment firm
• an Undertakings for Collective Investment in Transferable Securities (UCITS) management company
• a corporate body trading shares on a regulated market in a European state

Even if your company is exempt, carrying out an audit is an excellent opportunity to review the financial position of the business and provide reassurance to lenders and investors. It may be worth discussing your options with an accountant.

What is an audit?

An audit is a review of financial accounts by an independent accountant who is qualified to act as an auditor. The review will include a full stocktake and analysis of accounting records and business bank accounts to determine whether the financial transactions and figures stated in the company accounts are true and accurate.

Setting up a business bank account for your limited company ensures complete corporate transparency. In the event of an audit, this will prove invaluable because it will be far easier to trace and account for all money spent and received by your company.