UK Business Bank Account 2026/27: Do You Need One and How to Choose
UK business bank account 2026/27: limited companies effectively need one, sole traders do not but should, FSCS £120,000 per licence, bank vs e-money, and how to open one.
A plain-English guide to business bank accounts for 2026/27. Whether you legally need one (a limited company effectively does; a sole trader does not, but it is strongly recommended), the crucial difference between a bank protected by the FSCS up to £120,000 and an e-money provider that only safeguards your money, what to compare on fees and features, and how to open one. No endorsements, no affiliate links - just the verified rules.
1. Do you legally need a business bank account?
The answer depends entirely on your business structure, and the two cases are genuinely different in law.
Limited company
Effectively essential
A limited company is legally separate from the people who own it (per GOV.UK). The company's money belongs to the company, not to you, and must be kept separate from your personal finances. Running it through a personal account undermines that separation, complicates the statutory accounts the company must file, and breaches most personal-account terms. In practice the company needs its own account in the company's name.
Sole trader
Not legally required
A sole trader and their business are the same legal person, so there is no legal requirement to hold a separate business account (per MoneyHelper). You can use a personal account - but most personal-account terms and conditions prohibit business use, and a bank can freeze or close an account used that way. A dedicated account is strongly recommended.
2. Why a separate account helps even when it is not required
- Cleaner bookkeeping. One account for all business money means your bank feed maps straight to your records, with no picking business transactions out of personal spending.
- Making Tax Digital and Self Assessment. A single business account makes quarterly MTD updates and your annual return far simpler, and gives HMRC a clean audit trail if a return is queried. See our MTD for Income Tax software guide.
- Legal separation for companies. For a limited company, a dedicated account is how the company's finances are kept separate in practice - which is what its separate legal-entity status requires.
- Professionalism and cash flow. Invoicing and being paid from a business-named account looks more established to customers and suppliers, and makes it easier to set money aside for tax as you go.
3. Bank vs e-money institution - the protection difference
This is the single most important thing to understand before choosing where to hold your business money. Not every "account" is a bank account.
| Provider type | What it holds | Protection if it fails |
|---|---|---|
| Bank, building society or credit union | A deposit-taking licence | FSCS protects eligible deposits up to £120,000 per banking licence |
| E-money or payments institution (many app-based accounts) | An FCA authorisation to issue e-money / provide payments | No FSCS - funds are safeguarded (segregated or insured) instead |
Under FCA rules, e-money and payments firms must safeguard customer money by keeping it separate from their own or covering it with insurance, rather than protecting it through the FSCS (per the FCA safeguarding requirements). The FSCS itself confirms it cannot protect money held with e-money institutions and payment providers. Safeguarding is not the same as FSCS cover - if such a firm fails and its safeguarding is short, there is no compensation-scheme backstop. Many app-based and challenger accounts are e-money accounts, so check the provider type before holding significant balances.
4. What to compare when choosing
- Monthly fee and free-banking period. Some accounts charge a monthly fee; some offer an introductory free-banking period. Work out the cost once any introductory period ends.
- Transaction and cash-handling charges. Per-payment fees and cash or cheque deposit charges matter a lot if your business handles cash - check the tariff, not just the headline fee.
- Accounting software integration. A direct feed into your accounting software makes MTD and year-end far easier.
- Borrowing. Whether you can get an arranged overdraft, a business credit card or lending if you need it.
- App and online banking quality. Day-to-day usability, payment limits and support channels.
- Bank vs e-money. Whether the provider is FSCS-protected or safeguarded only - see section 3.
This guide does not rank, name or endorse any provider. Compare current published tariffs directly with each provider, because fees and offers change frequently.
5. FSCS protection explained
Protection limit
£120,000
Per banking licence - up from £85,000 on 1 Dec 2025
Size test
None
Small and large companies both covered for deposits
Per licence
Not per brand
Brands sharing a licence share one limit
The FSCS protects eligible deposits with a UK-authorised bank, building society or credit union up to £120,000 per banking licence if the firm fails (the limit rose from £85,000 on 1 December 2025). Key points from the FSCS:
- There is no size test for deposit protection - companies are covered regardless of size.
- A limited company (a separate legal entity) can claim up to the limit for its business account, separately from any personal account you also hold.
- A sole trader's business and personal accounts are aggregated, so the single limit applies across both combined.
- The limit is per banking licence, not per brand. Where several brands share one licence, the combined balance across them is capped at the one limit, so check whether your providers share a licence.
6. How to open a business account
Requirements vary by provider, but you should generally expect to supply:
- Proof of identity for the applicant - typically a passport or driving licence.
- Proof of your business address.
- Director or partner details where relevant.
- Business documentation. A limited company will usually need its registration or incorporation details and articles of association, and may be asked for its company registration number. A sole trader may be asked for their Unique Taxpayer Reference (UTR) and business details.
Always check the provider's opening checklist first, as exact requirements and identity checks differ between providers.
Related guides
- How to set up a limited company 2026/27 - incorporation, directors and first steps, including opening a company account.
- Sole trader vs limited company - which structure fits your business and how it changes your banking.
- MTD for Income Tax software 2026/27 - accounting software that connects to your business account.
- Contractor accountant guide 2026/27 - support for running a company's finances.
Frequently asked questions
Do I need a business bank account in 2026/27?
If you run a limited company, a separate business bank account is effectively essential - a limited company is legally separate from the people who own it, so its money is the company's, not yours, and it should not run through a personal account (most personal-account terms also prohibit business use). If you are a sole trader, you are not legally required to have a business bank account and can use a personal account, but most personal-account terms and conditions prohibit business use and a dedicated account is strongly recommended for bookkeeping, Making Tax Digital and Self Assessment. Eligible business deposits are protected by the FSCS up to £120,000 per banking licence.
Do sole traders need a business bank account?
No - a sole trader is not legally required to have a separate business bank account, because a sole trader and their business are the same legal person. You can legally put business income and expenses through a personal account. However, most personal current-account terms and conditions prohibit using the account for business, and a bank can freeze or close an account being used that way. A dedicated account is strongly recommended so your business and personal money stay separate, which makes bookkeeping, Making Tax Digital and Self Assessment far simpler. Some banks offer accounts specifically aimed at sole traders.
Can I use a personal account for my limited company?
You should not. A limited company is legally separate from the people who own it, so the company's money belongs to the company and must be kept separate from your personal finances. Running company income and expenses through a personal account blurs that separation, complicates the statutory accounts the company must file, and most personal-account terms and conditions prohibit business use in any case. In practice a limited company needs its own business bank account in the company's name.
Is a business bank account protected by FSCS?
If the account is with a UK-authorised bank, building society or credit union, eligible business deposits are protected by the Financial Services Compensation Scheme up to £120,000 per banking licence (this limit rose from £85,000 on 1 December 2025). There is no size test for deposit protection - both small and large companies are covered. A limited company can claim up to the limit for its business account separately from any personal account you hold. Sole traders have their business and personal accounts aggregated, so the single limit applies to both combined. Important - money held with an e-money or payments provider is not FSCS-protected; it is safeguarded instead.
What is the difference between a bank and an e-money provider?
A bank, building society or credit union holds a deposit-taking licence, so eligible business deposits are protected by the FSCS up to £120,000 per banking licence if the firm fails. An e-money institution or payments firm (many app-based accounts) is not a bank - the FCA requires it to safeguard customer money rather than protect it through the FSCS. Safeguarding means your funds are segregated or covered by insurance, but if the firm fails and its safeguarding is short, there is no FSCS backstop. Check whether an account is provided by a bank or an e-money institution before deciding where to hold significant balances.
What should I compare when choosing a business account?
Compare the monthly account fee and any introductory free-banking period; per-transaction charges and cash or cheque deposit fees (a big factor if you handle cash); whether it integrates with your accounting software for Making Tax Digital; the quality of the app and online banking; access to an arranged overdraft, borrowing or a business credit card if you need it; and crucially whether the provider is a bank with FSCS protection or an e-money institution with safeguarding only. Match the account to how your business actually operates rather than to a headline offer.
What do I need to open a business bank account?
Providers typically ask for proof of your identity (passport or driving licence), proof of your business address, and details of the directors or partners. A limited company will usually also need its business documentation, such as its registration or incorporation details and articles of association, and may be asked for its company registration number. Sole traders may be asked for their Unique Taxpayer Reference (UTR) and details of the business. Exact requirements vary by provider, so check the account's opening checklist before you apply.
Does a business account make tax and accounting easier?
Yes. Keeping all business income and expenses in one dedicated account means your bank feed maps cleanly to your bookkeeping, which makes Making Tax Digital quarterly updates, Self Assessment and limited-company statutory accounts far simpler and reduces the risk of missing or double-counting transactions. It also gives you a clean audit trail if HMRC ever queries a return. Most business accounts connect directly to accounting software so transactions flow through automatically.