You've taken the plunge and have set yourself up as self-employed. Congratulations! It's an exciting time for you, albeit probably a little scary too. If you've made the change to self-employed, one of the most important first steps you need to address is to choose the best online banking account for your business needs.

If you’re a freelancer or self-employed in the UK, it’s natural to wonder whether you have to have a business bank account for a small business. The short answer is yes. You need to open a business account that will meet the unique needs of freelancers, the self-employed and sole traders.

What type of business bank account do you need when self-employed?

Being self-employed can be a very different experience from being an employee. YOU are in control of your day-to-day, including admin and finances. With this added responsibility, you should make sure you have the right type of business bank account for your needs.

If you're self-employed as a sole trader (as opposed to having a limited company) then you could use your personal bank account for business banking. Why? Because for tax purposes, your money and the money that belongs to the company are one and the same. However, you're strongly advised to think twice about doing so, especially if you're new to running your own business and aren't confident in managing your finances. These days, many banks are actually applying additional rules when it comes to sole traders using their personal accounts for professional purposes. So for both ease of transaction and your own peace of mind, separate accounts are strongly recommended.

If you are set up as a limited company, you must keep the finances of the company and its owner separate.

Why do you have to have a business bank account for a small business?

Several freelancers and sole traders wonder whether they need a small business bank account primarily because since they don’t have a team or even an office, they may not think of themselves as a business. The second reason is that if you’re a sole trader, you’re not legally required to open or conduct transactions through a business account.

But if you conduct business, you need all the specialised services a business can get. That includes a business account. It will make it easier to accept payments, pay yourself salaries, work-related expenses and help you prepare and file taxes.

Top 6 reasons to open a business bank account when self-employed

A business bank account gives you a better handle on your earnings for tax purposes. Plus, it will be much easier to keep costs under control if spending isn't mixed in with personal purchases.
HMRC legally requires you to separate being a business customer from your personal transactions. Therefore, having a separate account will simplify your accounting and save you time.
If you have a different name for your company then you are better to have a bank account under that name.
You can choose an account with the relevant tools that you require, such as directly linking to your accounting software.
If you ever need to apply for finance (including a credit card or loan), then having a business bank account will be necessary.
If you ever get selected by HMRC for an in-depth audit then having your transactions kept separate will make things a lot easier.

The best business bank accounts for your self-employed needs

When it comes to choosing your new business bank account, shop around for the account that suits you best in terms of features, savings offers and fixed rates. Many banks have good introductory offers for self-employed people, so always look for those too.

So, what should you look for in a business bank account? It should suit your specific needs, be easy to operate, shouldn’t be expensive and should have excellent customer support, among other features.

To make it easy, here’s Chalkboard’s list of the five best business accounts for freelancers, the self-employed and sole traders.

1. Starling Bank

As a freelancer, Starling Bank’s business account for sole traders should interest you. To begin with, you don’t have to pay any monthly fees. You also won’t have to go through a long and tedious account opening process. You can have your business account in a matter of minutes.

You’ll be able to automate your expenses and get instant notifications of credits or withdrawals. The award-winning digital business account offers a full suite of banking services and also comes with exceptional customer support.

2. Monzo Business

If you need simplified business banking, Monzo Business is what you should be looking at. This fully regulated bank enables you to open an account from your phone and allows for easy and free transfers within UK banks.

Although the Lite account doesn’t have any charges, it would make sense to opt for a Pro account. With it, you would be able to integrate any accounting software for small businesses that you might use.

3. ANNA Money

Why is ANNA Money suited to the self-employed? Because you’re not just getting a business account; you’ll also be getting a virtual assistant.

Other than all the routine banking functions, it will help you create and send invoices. It will also help you track your expenses and take care of your business’s tax returns. Plus, if the automated chatbot can’t answer your questions, you’ll be transferred to a real agent within minutes.

4. Tide

Over 350,000 business owners, including freelancers and sole traders, have chosen Tide for its ease of use and simplicity. The account comes with invoicing, money management features and a prepaid Mastercard.

Admittedly, the free plan for freelancers doesn’t come with features that others on the list offer. But if you’re looking for a simple e-account without advanced integrations or features, Tide is a worthwhile option.

5. Revolut Business

Are you a freelancer or sole trader who works with overseas clients or customers? If so, Revolut Business should top your list of potential business bank accounts. With a local GBP and EUR account, it lets you accept payments from other currencies. With an IBAN code, you’ll be able to receive transactions across 25 currencies.

In other words, you can keep your payments in any of these currencies separately in your Revolut account and avoid exchange rates.

In short

As a freelancer, do you have to have a business bank account for a small business? Considering the benefits you get, it makes sense to open one and separate your personal and business finances.

While there may be no such thing as the perfect business bank account, there will be an account that most likely suits your self-employed status more than others. So take your time to compare business bank accounts and consider each of their strengths and weaknesses before making a decision.