Business Bank Accounts for Contractors
As a contractor operating under a limited company you will need to open a business bank account in order to get paid.
Your limited company is a separate legal entity and as such the money your company makes needs to be kept completely separate from your personal funds. Umbrella contractors on the other hand are not required to open a separate bank account as they are PAYE employees.
Contractors will typically use their bank account to:
- Receive money from clients for the work they do
- Pay their own salary and dividends
- Pay their corporation tax and VAT
- Pay for their company expenses
- Set up direct debit payments for mobile phone, insurance, accountancy fees etc.
Your accountant may recommend a bank for you to use; however, it is always worthwhile comparing a variety of accounts to ensure you choose the best bank for your new company.
How to choose your business bank account
Points to consider when choosing your business bank account include:
1. What are the account charges and fees?
Most banks promote special offers such as free banking for the first 12–24 months. Find out what their charges and fees are after this period. Some banks offer ongoing free business banking if you maintain a minimum balance—check the costs if you don't.
2. Do they offer online and telephone banking?
Online banking is essential for contractors to make payments, set up direct debits and access real-time statements 24/7. Consider the quality of their telephone banking too, as you'll likely need it at some point.
3. Do they allow you to open a deposit account?
Contractors must pay annual Corporation Tax and quarterly VAT. A separate deposit account makes it easier to set aside funds regularly, and can earn more interest than a current account.
4. What are their interest rates like?
Some accounts pay interest on balances, though current account rates are usually minimal. Check the rates on deposit or savings accounts if you plan to set aside tax money.
5. What further banking services are available?
You may need other facilities such as faster payments, historical statements, international payments, credit/debit cards, loans or overdrafts. Compare charges and accessibility of these extras.
