Do you need a separate bank account if you’re self-employed?

When you’re starting a new business, it’s not always clear if you need to open a separate bank account.

The right answer depends on which business structure you’ve chosen, i.e., whether you’re trading as a sole trader, via a limited company, working in a partnership, or using an umbrella company.

In this guide, we look at whether you’re legally obliged to have a business account, why it might be worth opening one anyway, and how the rules differ depending on the business structure you’re trading under.

Do you need a separate business bank account if you’re self-employed?

If you’re working as a sole trader, there’s no legal obligation to open a business bank account.

You and your business are treated as a single legal entity, so you can use your personal current account to receive income and make business purchases.

But while it’s allowed, it’s rarely an ideal option.

Most sole traders find that separating their business and personal finances from the start helps avoid problems down the line.

Some benefits of having a separate account

• Easier bookkeeping – you can track business income and expenses without mixing personal costs
• Simpler tax returns – keeping your business transactions in one place makes your annual Self Assessment much less stressful
• Compatible with software – most online accounting tools (like FreeAgent, Xero or QuickBooks) connect directly to business accounts
• Looks more professional – clients and suppliers will take you more seriously if they’re making payments to a business account
• Reduces potential problems with your bank – many personal account terms prohibit business use, and your bank may flag or freeze transactions if you overuse them for business purposes.

Opening a basic business account is often free or low-cost, and some challenger banks even offer perks like cashback and free invoicing tools.

For more help, see: How to choose the best sole trader bank account

Do partnerships need a separate business account?

If you’re starting a partnership, you’re not legally required to open a business account; however, it’s strongly recommended.

When more than one person is involved, having a shared business account makes it far easier to:

• Track income and costs
• Share financial access
• Avoid disputes about who paid what

Most banks will require you to open a joint business account and may request identification from all partners, as well as a signed partnership agreement.

Read more: Joint business bank accounts for partnerships

Do limited companies need a business bank account?

Yes – if you set up a limited company, you are legally required to open a separate business bank account in the company’s name.

This is because your company is a separate legal entity.

All income and expenses must go through the business account, not your personal one.

Mixing finances can lead to accounting errors, tax problems, and possible breaches of the Companies Act – even if you’re the sole director and shareholder.

Do umbrella company workers need a business account?

If you work through an umbrella company, you’re classed as an employee. The umbrella receives payment from your agency or client, deducts tax and other costs, and pays you a net salary.

You don’t invoice clients or handle business income yourself, so a personal bank account is all you need.

Why open a business bank account even if you don’t need to?

Even if it’s not required by law, a separate business account can help you:

• Stay organised – see what’s business-related at a glance
• Get paid faster – many business accounts let you send professional invoices
• Prepare for growth – lenders and grant providers often ask for business statements
• Simplify audits or investigations – reduces the risk of confusion if HMRC reviews your tax return
• Build your business credit score – useful if you apply for finance later on

It also helps you set boundaries between “you” and “your business” – something many sole traders find useful psychologically.

Just check your bank’s terms first. Some personal accounts don’t allow business use, and using them this way could trigger reviews or restrictions.

What to look for in a business bank account

There’s more choice than ever – and not all business accounts come with fees. You can now choose between:

• Free business accounts – especially for sole traders or side hustles
• Digital-first banks – like Tide, Starling or Zempler, with mobile tools and fast setup
• Traditional banks – like Barclays, NatWest or HSBC, with in-branch support
• Accounts with rewards – some providers offer cashback, discounts or software perks
• See our comparison table on our banking home page