Do you need a business bank account for a limited company?

Yes — here's why, and what to actually look for.

By Sam Morris · comparebusinessbanking.com

Short version: yes. If you've incorporated a limited company — or you're about to — you effectively need a business bank account. Not because one statute says so in those exact words, but because the company is a separate legal entity from you, its money isn't your money, and mixing the two creates problems that are tedious at best and expensive at worst.

This is the opposite answer to the sole trader one. Sole traders can get away with a personal account. Limited companies can't. The moment you filed at Companies House, you created a new legal person that needs to keep its own finances. Here's the detail.

The short answer

No single Act of Parliament says "a limited company must have a bank account called a business bank account." What the law does say, loudly and in several places, is that a limited company must keep its finances separate from its directors' and shareholders' personal money, must maintain adequate accounting records, and must be treated as a genuinely distinct legal entity.

The only realistic way to do all of that is a dedicated business bank account. Frankly, if you're asking the question at all, you already know the answer.

Why a limited company is different from a sole trader

When you registered your company, you created a new legal person — one that can own property, sign contracts, owe money, and be sued in its own right. This is the Salomon principle, from Salomon v A Salomon & Co Ltd [1897], which has underpinned UK company law for over a century.

The practical consequence: your company's money belongs to the company, not to you — even if you're the sole director and sole shareholder. The company can pay you a salary, reimburse expenses, and declare dividends, but it can't casually fund your weekly shop. Keeping its bank account separate from yours is the clearest way to show you understand that distinction. It's also the whole reason you incorporated — limited liability only works if the company actually looks limited.

What the law actually says

Three overlapping sources of obligation. Together they make separate banking the only sensible option.

The Companies Act 2006. Section 386 requires every company to keep adequate accounting records sufficient to show and explain its transactions and disclose its financial position with reasonable accuracy. Section 387 makes failure to do so a criminal offence by every director in default — punishable by fine and, in serious cases, up to two years' imprisonment. Sections 171 to 177 set out directors' general duties, including avoiding conflicts of interest. Treating company cash as personal cash arguably breaches at least one of those duties on most readings.

HMRC. HMRC expects a clear separation between a limited company's finances and those of its directors and shareholders, for both Corporation Tax and VAT record-keeping. Records must be kept for at least six years from the end of the relevant accounting period. A mixed personal account creates an evidential nightmare the first time anyone at HMRC asks a detailed question.

Companies House. Companies House doesn't mandate a business bank account in so many words, but it requires annual accounts and a confirmation statement — both of which assume the company maintains its own financial records, distinct from anyone else's.

Can I technically use a personal account?

In theory, a company could use an account in an individual's name used exclusively for company transactions. In practice, most UK banks prohibit business use of personal accounts in their terms, meaning the account can be closed or restricted if they spot business activity. And even if your bank didn't notice, HMRC would — and they'd treat the mixed audit trail as evidence of inadequate records. So no, not really.

Piercing the corporate veil — the bit nobody mentions

Here's the bit most articles skip — and the single strongest reason to care.

Limited liability — the thing that protects your house, savings, and personal assets when the company gets into trouble — is not automatic. It depends on the company being run as a genuinely separate entity. When it isn't, courts can occasionally "pierce the corporate veil" and hold directors or shareholders personally liable for the company's debts.

English courts set a high bar. The leading case, Prest v Petrodel Resources Ltd [2013] UKSC 34, confirmed the veil will only be pierced where someone under an existing legal obligation deliberately evades it via a company they control. But commingling personal and company finances is one of the factors consistently cited when courts look at whether a company is a real entity or a sham.

More common in practice are the adjacent personal liabilities under the Insolvency Act 1986. Section 214 (wrongful trading) and Section 213 (fraudulent trading) can make directors personally responsible for company debts if they keep trading when they shouldn't. These are actively enforced, and poor separation of finances makes them harder to defend against.

The £50 you spent incorporating isn't a magic force field. A dedicated business bank account is the cheapest piece of evidence that the company is a real separate entity — and that limited liability means something.

What a business bank account actually gives you

Beyond staying on the right side of the law:

Clean accounts. Your accountant can produce year-end figures without unpicking what was a dividend and what was a Tesco run. Saves fees, and makes your accountant like you.

Credit history for the company. The business builds its own profile at Experian Business, Equifax Business, and Creditsafe. Matters later for overdrafts, trade credit, and asset finance.

MTD for VAT compliance. If you're VAT-registered, Making Tax Digital requires digital records and compatible software. An account that feeds into your accounting software makes this straightforward.

Credibility. Clients paying invoices are reassured when the bank details match the company name. Some won't pay into a personal account at all.

Access to lending. Overdrafts, business loans, invoice finance, asset finance — all sit alongside a business current account. You'll struggle to access any of them without one.

What about Making Tax Digital?

Worth being clear about this, because a lot of older articles get it wrong.

MTD for Income Tax does not apply to limited companies. It applies to sole traders and landlords with qualifying income above the relevant threshold (£50,000 from 6 April 2026, £30,000 from April 2027, £20,000 from April 2028). A director's salary and dividends from their own company don't count as qualifying income — they're PAYE and investment income.

MTD for Corporation Tax has been shelved. HMRC confirmed in its July 2025 Transformation Roadmap that it will not proceed. Limited companies continue to file the CT600 annually through existing HMRC systems. No quarterly updates, no MTD-specific software requirement for Corporation Tax.

MTD for VAT applies if the company is VAT-registered. Digital records and submission via compatible software. It's the one MTD requirement most limited companies need to think about.

What to look for in a limited company account

Is it a bank or an e-money institution?

This is the distinction most comparison sites skip, and it matters. Banks — institutions authorised by the PRA with a full banking licence — are covered by the Financial Services Compensation Scheme (FSCS). The FSCS deposit protection limit is £120,000 per eligible depositor, per authorised firm (up from £85,000 on 1 December 2025). If the bank fails, the FSCS pays out, typically within seven days.

E-money institutions (EMIs) are FCA-regulated but don't have a banking licence. Instead of FSCS, they "safeguard" customer funds in segregated accounts or approved liquid assets. In theory your money is protected. In practice, if the EMI fails, you're waiting on an insolvency process, not a seven-day statutory payout.

For a new company with a £5,000 float, academic. For one sitting on £150,000, it matters. Rule of thumb: if you'll habitually hold meaningful cash, favour a bank. Otherwise an EMI is often fine — just know which you're choosing.

Limited company providers fall into three groups:

High-street banks (FSCS): Barclays, HSBC, Lloyds, NatWest. Stronger on lending and cash handling, slower to open, usually a monthly fee after an intro period.

Challenger banks (FSCS): Starling, Allica, Cashplus, Monzo, Mettle. Mettle is a trading name of NatWest Bank plc, so funds are FSCS-protected as part of the NatWest banking group. Allica typically requires trading history, so isn't usually an option for a newly incorporated company — check current eligibility before applying.

E-money institutions (safeguarded, not FSCS): Tide, Wise, ANNA. Revolut now holds a UK banking licence but is still migrating customers across from its e-money arm — new applicants should check which they're being onboarded to.

Accounting integration

A direct bank feed into Xero, QuickBooks, FreeAgent, or Sage saves real time at year-end. Look for real-time feeds rather than overnight batch, and check reviews for reliability — a broken feed is worse than no feed, because you stop checking.

Cash handling

Most challengers and EMIs either don't accept cash, or route cash deposits through the Post Office with per-deposit fees. If your company takes cash — trades, retail, hospitality — high-street accounts or challengers with proper Post Office integration become non-negotiable.

Multi-currency

Real FX markups vary materially. Wise and Revolut are typically cheaper than high-street banks for transfers, but published rates change — check the current markup on the provider's own site before committing if FX volume matters to you.

Fees

Monthly account fee, per-transaction fees for Faster Payments and CHAPS, cash deposit fees, FX markups. A "free" account charging 20p per transaction can cost a busy company more than a £7-a-month fixed-fee one.

Credit facilities and application speed

High-street banks still lead on lending for established companies. Tide and Starling can open in minutes for a clean UK-resident-director application; high-street banks can take one to four weeks. Plan accordingly.

Where limited companies commonly get stuck

Business bank account applications are declined more often than most new directors expect. The common causes are predictable:

SIC code problems. The code you filed at Companies House is the first thing a bank's compliance system checks. Generic catch-all codes (74990, 82990) get read as evasive. High-risk sectors (crypto, gambling, adult services, forex, CBD) often get declined automatically.

Mismatched records. Director address on Companies House not matching the ID you're submitting. UBO percentages that don't add up. Small inconsistencies get treated as big ones.

Non-resident directors. Most mainstream UK banks decline applications where no director is UK-resident. Wise and Revolut have historically been more open to non-resident directors; specialist intermediaries exist for harder cases.

Complex ownership. Offshore parent companies, nominee directors, layered holding structures — compliance teams decline rather than unpick.

Director credit history. Previous dissolutions, CCJs, undischarged bankruptcy. Not always fatal, but always relevant.

If you've been rejected, we've got a separate guide on what to do next — it's almost never worth firing off applications to everyone.

Our view

Open one the week you incorporate. Don't overthink the first account — you can switch later. Favour an FSCS-protected bank if you'll realistically hold more than a few thousand pounds; take an EMI if you won't and want speed and a decent app. Integrate it with your accounting software from day one, before you have mess to reconcile.

The worst option, by a distance, is the one some new directors drift into: running company money through a personal account "just for now." Just for now becomes just until year-end becomes an unhappy conversation with an accountant about to charge you extra to sort it out. Don't be that company.

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Sam Morris is the pen name of the founder of comparebusinessbanking.com.