When choosing a bank account as a contractor, there are many factors to consider, as it’s important you receive the best services from your bank to suit your individual line of work.
Contractors will typically use their bank account to:
- Receive payments from clients for work completed
- Pay themselves a salary and dividends
- Pay their corporation tax and VAT
- Pay any company expenses
- Automate direct debit payments for accountancy fees, insurance etc.
In accordance with the law, as your limited company is a legal entity in its own right, it means you cannot use your personal bank account for business purposes to receive payments from clients and agencies. The added advantage of this is that it also shields you from business risk. If you made a mistake on a job and were then sued, it would be your company that would be liable for legal costs and compensation, whereas your home and other personal assets would be perfectly safe.
As a contractor working under an umbrella company, you are still regarded as an employee and hence are not required to open a business bank account. Instead, you can continue to use your personal bank account for financial transactions made by the umbrella company to you.
How can you compare between banks? Well, we have put this article together to help you:
The best Business Account for Contractors
The main difference between your Business and personal accounts is the charges you will have to pay on a company account. We would suggest you compare various bank accounts and not simply use the same bank where your personal account is held. There are many high street banks as well as newer online banks that offer various competitive business bank accounts. So, take some time to consider the following:
- Before you select a bank, research to check they perfectly understand your requirements as a contractor and that they provide all the relevant services.
- Interest on deposit accounts can be important for some contractors who require an ongoing cash surplus.
Business banking charges
Check what charges will be applied. Compare general monthly account fees, overdrafts, card charges and bank transfer fees etc. Many mainstream UK banks offer a free period for new businesses and switching customers, ranging from 6 to 30 months. Many online-only bank accounts offer a free version with limited features. There are even a few banks that have no charges at all!
Tip: A good question to ask is if and when their free banking period ends and what business charges will be incurred after this date. Charges may be higher than other banks that do not offer this benefit, so it is advisable to compare different banks before deciding.
Contractor work may take you to remote areas or towns where a local branch of your bank may not be available so online, and mobile banking is a necessary alternative. This option may be essential for the day-to-day running of your contractor business and would be the deciding factor in choosing a suitable bank.
Also, check the availability of telephone and online and mobile banking
Company credit and debit cards
Business bank accounts that offer company debit or credit cards (and cheque books) allow contractors to pay for expenses from their business bank account. No personal money would have to be used and can be claimed back from the business at a later date keeping accounting issues simple.
Opening a contractor business account quickly
If your contracting job commences at short notice and you need to open a business account quickly, there are some banks that will accommodate you. Note that applying for a bank account often takes a long time due to anti-money laundering and credit checks that banks are legally required to carry out. However, some banks will be able to perform these checks quickly and open a business bank account in the required time needed.
Connecting your online accountancy software to your business bank account
Specialist Accounting software allows accountants to connect their business account to your accounting software. This allows for efficiency and simplicity, ensuring that all your accountants are accessible online by your accountant for year-end accounts.
As your accountant, we will be able to advise you which banks offer this service allowing you to easily connect your bank to your accounting software, so you can set up bank feeds so that transactions can flow straight into the software every working day.
Banking services that benefit contractors
As a contractor, you will only have a few banking transactions per month typically performed electronically. Therefore, just check whether the many value-added services that some banks offer will be beneficial or even necessary for your business bank account.
Contractors can use this to leverage the best deal from a bank as you may need only a basic bank account that is best suited to your needs.
Accounting for Contractors
Fusion Accountants are specialist Accountants for Contractors. We can help you with the application and setup process of opening a Business Bank Account. We also provide accounting services to hundreds of UK Contactors, offering a perfect mix of software, advice, tax planning, and accounting support contractors need. Whether it is talking through your IR35 status or have questions on taking salary or dividends, we will get the most out of your contractor accounts, starting at just £69 + VAT per month.
View our dedicated section on Accountants for Contractors. As a client of ours, we can help you choose the correct bank account and even help set it up for you. We are also ICAEW & ATT accredited and partnered with the top accounting software UK providers.