Finance 21 November 2016

Which are the best business current accounts?

bank accounts
A current account is essential no matter what type of business you run.
Like it or not, you need a dedicated business current account. Here, Russell Smith at Russell Smith Chartered Accountants guides small business owners through the various options.

For those running a sole trader enterprise, it can be tempting to simply use your personal current account for business transactions, but that can lead to a number of problems.

Confusion on your part and from HMRC may result in both inaccurate tax and business valuation, leading to uncertainty and instability.

For those running a limited company, the choice becomes much easier. As a separate entity, your business requires its own financial resources. Having income registered under a personal account would incur legal complications.

A business account, no matter what type of business you run, is essential. But this begs the question: which one should you get?

Trying to the find the best business current account isn?t easy. They each come with their own set of benefits and drawbacks, with varying advantages depending on the current position of your business.

Let?s break down the best business current accounts out there, so you can decide which one fits your unique requirements.

For startups

The Royal Bank of Scotland (RBS) business current account for startups

From one of the most recognisable names in banking, we have a business current account designed for those new to the business world. Offered to businesses who have been trading for less than a year, with a turnover of ?1 million or lower, the Business Current Account for Startups is tailor-made for businesses looking to keep costs down and growth up.

What?s Good?

Account owners receive 24 months of free banking, which means no interest paid on balances and no charges for transactions made through the account.

You?ll also receive a ?500 no-fee overdraft for the first 12 months of service. Internet banking, direct debits, a mobile app and all the other common features are available for ease of use. Access to a credit card with no annual fee for the first year is also included, if requested.

What?s Bad?

Limited to ?1 million turnover, meaning it isn?t exactly adaptive to rapid growth.

The verdict

This is the perfect business account for small businesses just starting out on their journey. Those looking to go into rapidly growing industries like big tech or finance might consider looking elsewhere, but for most businesses, the free 24 months of banking limited to ?1 million turnover will suit just fine.

For evolving or established businesses

The HSBC small business bank account

As your business grows, you may start to feel the limitations of a startup account. Likewise, if you have been trading for over two years, it isn?t something that will fit with your business. What you need is something that keeps fees low, while offering a bit more wiggle room. The HSBC small business bank account is your answer.

What?s Good?

For those transferring from another business bank account, the process is simple and can be done online. Once you?ve made the move, you?ve got 18 months of free banking ahead of you. No service charges, no interest, just simple ins and outs. The turnover limit is ?2 million. With the national average of business turnover currently at ?500,000, that will be more than enough for most businesses.

What?s Bad?

No free overdraft limit. After 18 months of free banking is up, you will move to their small business tariff account, which will incur monthly fees and service charges. It?s best to consider your options beyond this point and look to other accounts on the list.

The verdict

One of the best business bank accounts around, the HSBC current account offers business owners room to breathe while avoiding nasty costs. Great for established businesses, anyone coming out of a startup account, or those who are seeing increased turnover.

For growing enterprises

The Santander business current account

While the average turnover for UK businesses is ?500k, it is not uncommon for successful brands to break the ?2 million mark. If that happens, you?ll be looking for something a bit more open. The Santander Business Current Account is, potentially, the perfect solution.

What?s Good?

With no limits on turnover and a staggering 18 months of no service charges or interest at all, you?ve got complete freedom. Your business can actually earn interest on credit balances, too.

What?s Bad?

The 18 months free is only available for holders with a 1I2I3 World or Santander Select personal account. Without these, you immediately start on their paid tariffs, which ranges from ?7.50 to ?40 per month, with additional costs incurred on transactions outside of that tariff ? tariffs that are very limited.

The verdict?

If you hold the right personal account with Santander, this is the best business account for a growing enterprise, offering incredible savings over an 18-month period. After which, you can move to the next account on the list. However, if you aren?t holding or can?t hold, the correct account, we recommend you avoid this one.

For bigger businesses

The Cashplus Business Account

As the money starts rolling in, most business current accounts start to see much higher expenses. You?ll come across service charges for payments, premiums on income and interest on every penny kept in the account. The best business accounts, though, don?t need to cost an arm and a leg. The business account from Cashplus is the answer.

What?s Good?

Unlimited turnover. You don?t have to worry about how much you are making, as your business is free to rake in the cash. No interest paid on cash in the bank and very limited service charges. While there is a ?69 annual fee, when taking into account the reduced costs thanks to the benefits, this fee is exceptionally good value.

What?s Bad?

There is a ?2 charge per ATM use, ?3 if overseas. Not a huge issue as most business accounts operate online, but it is still worth noting. There is also a 99p fee per outbound transfers, like client payments, employee wages and suppliers, that occurs on every payment except for the first three of the month. Being an online bank, Cashplus has no official branches, although on-site banking can be done via the Post Office.

The verdict

For larger businesses with high profits, there isn?t another account available that reduces costs so significantly. Untethered by across-the-board service fees, turnover limit or interest, businesses have much more control over their money, while retaining more of their income than they would with other business accounts.

Russell Smith is managing director at Russell Smith Chartered Accountants

RBS has announced a ?400m compensation fund for small businesses. Read more here.

Sign up to our newsletter to get the latest from Business Advice.