Sole trader bank accounts – compared

Last checked and updated on February 20, 2023

If you are self-employed, your monthly and annual income is likely to be considerably more erratic than that of a salaried employee. You may wish to open a separate bank account to handle all business transactions. This is where sole trader bank accounts come in.

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You are not legally required to open a specialist sole trader bank account. You can just receive payment for your business services to a current account if that is your preference. This guide will discuss the merits and concerns of separating your personal and business finances.

Popular sole trader banking options compared

Virgin Money
✓ Business M Account
✓ In-Store, Online & App Banking
✓ Insights & Forecasting Platform

Mettle Business Banking
✓ Business Bank Account
✓ Online & App
✓ Quick & Easy Application Process

Tide Business Bank Accounts
✓ Free, Plus, or Pro Account
✓ iOS & Android Mobile App
✓ Upload & Auto-Match Receipts

NatWest Business Banking
✓ Business Current Account
✓ Online, App & High Street Banking
✓ Quick & Easy Application Process

HSBC Business Banking
✓ Business Current Account
✓ In-Branch, Online & App Banking
✓ FSCS Protected

Top 12 sole trader bank accounts

BankAccount nameMonthly feesTransaction feesInterest rate
BarclaysStart-up Business Account12 months free, then £8.50£60p per £100 transaction0%– you’ll need a Business Premium Account
Co-operativeBusiness Current Account30 months free, then £10£1 per £1000.03%
HSBCSmall Business Banking12 months free, then £81.5% of all deposits made at a Post Office, 50p per cheque depositUp to 0.61% using a built-in savings account (Kinetic app account holders only)
LloydsStart-up and Small Business Account12 months free, then £7£1 per £100 (cash) 85p per £100 (cheques or transfers)0.50%
Metro BankBusiness Bank Account£6, but free if your balance exceeds £6,00030 free transactions per month, then 30p for each0.50%
Monzo (online only)iBusiness AccountFree for basic
£5 for pro
None, except £1 per transaction using PayPoint0%
NatWest (Mettle App)MettleFreeNone0%
Royal Bank of ScotlandStart-up AccountFreeNone for 24 months, then up to 70p per transaction Savings accounts only
SantanderBusiness Current AccountFree for 18 months, then £7.50No charge for first £1,000 of monthly transactions, then 70p per transaction0% – you’ll need the costlier 1|2|3 Business Current Account
Starling Bank (online only)Sole Trader Bank AccountFreeNone0%
TSBBusiness Plus AccountFree for 30 months, then £11 (plus add-ons) No charge for first £1,000 of monthly transactions, then 70p per transaction0.65%
Virgin MoneyBusiness Current AccountFree for 25 months, then £6.50Free for 25 months, then 30p – 70p per transaction0%, but other perks, including cashback, are available
Best sole trader bank accounts in the UK

Does a sole trader need a business bank account?

As a sole trader, you have three choices when it comes to managing your finances:

  1. Maintain your personal bank account, merging your business and financial affairs
  2. Opening a second personal bank account, using this for your business affairs
  3. Opening a business bank account for all financial transactions relating to your business

The choice is yours as to which of these options you take up, but there are definitely advantages to opening a business account as a sole trader.

Benefits of opening a sole trader business bank account

There are distinct advantages to opening a sole trader business bank account over relying on personal accounts. These are as follows.

BenefitGood to know…
Professional appearancesThere is no denying that a bank account registered in a trading name looks more professional than a generic current account.
Separation of personal and professional financesKeeping your business and personal transactions separate makes life much easier when applying for a mortgage or completing a tax return.
CreditworthinessThe credit rating of a new business can increase if you have a business bank account – most banks will also offer overdraft and credit card facilities.
Benefits of having a bank account as a sole trader

Drawbacks of opening a sole trader business bank account

Nothing in this life is perfect, including banking as a sole trader. If you plan to open a sole trader business bank account, be aware of these potential pitfalls and do all you can to avoid falling into them.

DrawbackGood to know…
More administrationTwo disparate bank accounts mean more personal and financial administration to balance your books. You may need to hire an accountant to help.
FeesMost business accounts, including those designed for sole traders, attract fees. You’ll likely need to pay a monthly fee to keep the account open and accrue costs per transaction.
Interest rates – or lack thereofNot all business accounts, especially those designed for sole traders, pay interest on your balance. Those that do will likely cost more on a monthly basis.
Downsides to having a sole trader bank account

Can anybody open a sole trader bank account?

On paper, anybody can open a bank account in the UK. You’ll just need to provide proof of your identity and address. Some banks will also demand a minimum deposit to open the account and a set minimum monthly income to keep the account active.

Business accounts are a little more challenging to open, especially those designed exclusively for sole traders and start-ups. To qualify for such an account and enjoy the perks and reduced fees that come with it, you’ll need to provide evidence of good financial standing and company documents.

What interest rates and charges will I pay for a sole trader account?

This depends on who you bank with. See the comparison table above for the significant options in the UK and what they will charge you. If a bank offers a specialist account for sole traders and start-ups, with policies designed to help such a business model, we have listed it there. If they do not, we have referred to the most compelling standard business account for a sole trader.

Weigh up what is best for your needs – lower monthly fees and transaction costs against the potential to gain interest on your standing balance – and investigate your options.

You may prefer to look into a smaller, online-only account, but do so at your own risk – it’s advisable only to entrust a bank account protected by the Financial Services Compensation Scheme (FSCS).

Will HMRC audit a sole trader bank account?

If you register as a sole trader with HMRC and complete your self-assessment tax returns on time, you will largely fly under their radar – as a rule, the authorities have bigger fish to fry than a small, independent business. This is by no means certain, though. HMRC may decide to audit a sole trader for the following reasons.

  • Your declared income and expenses are erratic, rising and falling seemingly at random each year
  • Declared income and profit do not match what HMRC considers the industry average
  • You conduct multiple overseas transactions, especially for substantial sums
  • A third party tips off HMRC that you are gaming the tax system
  • Simple bad luck – you may be chosen for audit at random

A HMRC audit is stressful and time-consuming. You will be asked to provide evidence of all incomings and outgoings over one or multiple tax years, and access to your bank accounts may even be frozen while the audit unfolds. This means that a separate business bank account may help you sleep better at night – you will still be able to pay your household bills. Consider taking out HMRC audit insurance, and always ensure you maintain accurate financial records.

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Important – The information provided in our articles is intended to be for general purpose use only, and not advice for you or your business. We strive to publish accurate information, but encourage you to fact-check and seek expert guidance. You should always speak to a qualified professional to get tailored advice about how to operate your business under your specific requirements and circumstances.