Business Savings Accounts for Contractors

Tide Instant Saver

Through our partnership with Tide, ContractorUK members can access the Tide Instant Saver — letting you make your company funds work harder between tax deadlines.

A simple way to grow your retained profits while keeping funds ready when you need them. The Tide Current Account and the Tide Instant Saver are provided by ClearBank, so all savings and deposits are covered under the Financial Services Compensation Scheme — protecting your money up to £120,000.

Types of Business Savings Account

With the FSCS protection increase to £120,000, contractors have more room to hold surplus funds safely. There are three main types of business savings account:

Instant Access

Move money in and out at any time. Suits contractors who need quick access for VAT or Corporation Tax payments. Rates are lower than other account types, but the flexibility is essential when tax deadlines are non-negotiable.

Notice Accounts

Give 30–180 days’ notice before withdrawing, in return for a higher rate. Best for money you know you will not need for several months — for example, Corporation Tax reserves that are not due for nine months or more.

Fixed Term

Lock money away for 6–12 months or longer for the most competitive returns. Suitable only for genuinely surplus cash with no upcoming tax liabilities. If you need the money before the term ends, you will typically lose some or all of the interest earned.

What Contractors Should Set Aside

Understanding your tax obligations helps you work out how much to keep in a savings account at any given time.

Corporation Tax

Corporation Tax rates for 2025/26 are:

• 19% on profits under £50,000 (small profits rate)
• 25% on profits over £250,000 (main rate)
• A marginal relief applies between £50,000 and £250,000

Most contractor limited companies fall under the small profits rate. Setting aside approximately 19% of your net profit each month means you are prepared when your Corporation Tax bill is due — typically nine months and one day after your company’s year-end.

VAT

If your company is VAT-registered (mandatory once turnover exceeds the £90,000 threshold), you must submit quarterly VAT returns and payments to HMRC. Setting aside approximately 20% of your VAT-able income each month ensures you are prepared when the quarterly deadline arrives.

Dividend Tax from April 2026

From April 2026, dividend tax rates increase by 2 percentage points. A contractor taking £40,000 in dividends annually will pay approximately £800 extra in tax. This makes retaining profits inside the company — and earning interest on them via a savings account — even more attractive.

FSCS Protection for Contractor Savings

The Financial Services Compensation Scheme (FSCS) protects deposits up to £120,000 per eligible person per authorised firm, increased from £85,000 in December 2025.

Limited Company vs Sole Trader

Because a limited company is a separate legal entity, it receives its own FSCS protection. If you hold personal and business savings at the same FSCS-protected institution, each gets up to £120,000 of cover separately.

Sole traders are not separate legal entities. The £120,000 limit applies to all accounts at the same institution combined — personal and business together. Contractors who hold large cash reserves should consider spreading funds across different authorised firms.

Temporary High Balances

From December 2025, the FSCS also covers “temporary high balance” claims up to £1.4 million (up from £1 million) for qualifying life events such as selling a primary residence, receiving inheritance, redundancy payments or insurance payouts. This protection lasts for up to six months.

Check Your Provider

Not all business account providers are FSCS-protected. Electronic Money Institutions (EMIs) may look and feel like banks but do not offer the same safeguards. Always verify that your provider holds deposits with an FSCS-protected banking partner. You can check using the FSCS protection checker. For example, the Tide Current Account and Tide Instant Saver are provided by ClearBank, which is FSCS-protected — so both your current account balance and savings are covered up to £120,000.

Retaining Profits in Your Limited Company

There are good reasons why many contractors choose not to extract all their earnings — whether that means running a leaner limited company or planning for closing a company with retained profits.

With tax-free allowances eroded and dividend taxation pushing income into higher bands, retaining profits inside the company offers several advantages:

• Defer dividend tax — profits kept inside the company are not subject to dividend tax until you extract them. With the 2026 dividend tax increase, this deferral becomes more valuable.
• Maintain flexibility — retained profits give you a financial buffer for quiet periods between contracts, unexpected expenses or investment in your business.
• Business Asset Disposal Relief — if you eventually close your company through a Members’ Voluntary Liquidation (MVL), distributions are taxed as capital gains at 20% rather than income tax rates up to 45%. If you qualify for BADR, the rate drops to just 10% on the first £1 million.

A business savings account is the natural home for these retained profits — earning interest while keeping the money accessible and FSCS-protected.

What to Look for in a Contractor Savings Account

Here is what to prioritise:

• FSCS protection — non-negotiable. Make sure deposits are held with an FSCS-protected banking partner, not just an EMI.
• Instant access — for tax reserves, you need to be able to withdraw without notice or penalty when VAT and Corporation Tax deadlines arrive.
• Competitive rate — compare AER (Annual Equivalent Rate) across providers. Variable rates can change, so check whether any introductory rate applies and what happens afterwards.
• Integration with your current account — the ability to move money between your business current account and savings account quickly and easily. Ideally within the same app or platform.
• No lock-ins or withdrawal fees — avoid accounts that penalise you for accessing your own money. Tax deadlines wait for nobody.
• Low minimum deposit — useful when building reserves gradually as invoices are paid.

Tip: If you are switching your business current account to Tide, the Current Account Switch Service (CASS) transfers your payments, direct debits and standing orders automatically within 7 working days. Update your invoicing templates with your new bank details and notify clients directly — CASS redirects payments for up to 36 months, but a proactive approach avoids delays. For more, see the contractor bank accounts hub guide.

Related Guides

About This Guide

This guide is produced by ContractorUK in partnership with Tide, drawing on ContractorUK’s tax, limited company and banking resources. It covers the key considerations for contractors choosing a business savings account in the 2025/26 tax year, including the impact of the December 2025 FSCS increase and April 2026 dividend tax changes.

For personalised advice on your company structure, tax planning and savings strategy, speak to a specialist contractor accountant.

Tide Business Current Accounts and the Tide Instant Saver are provided through ClearBank. To find out more, read Tide’s Terms & Conditions.

Frequently Asked Questions