When you start out as a limited company contractor, one of your first tasks will be to open a business bank account.
As your limited company is a distinct legal entity in its own right, you cannot use your personal bank account for business purposes. Umbrella company contractors, who are PAYE employees, do not need to open a separate bank account.
Almost all contractor companies operate in the same way – they receive weekly or monthly transactions from their end client or agency, and make payments out in the form of salary, dividends and expenses, as well as direct debit payments to their accountants, insurers, and executive pension scheme (if appropriate), etc.
Most contractors do not therefore need high-transaction business bank accounts, which would be more suitable for a retailer. The main goal is to pay as little as possible for your business bank account, avoid punitive charges, and gain as many added extras as possible.
Free business banking
Most of the high street banks offer ‘free business banking’ to new companies, for periods of up to 24 months in some cases. It is important to find out what costs will be applied once your initial banking period expires, as most day-to-day business accounts charge per transaction, or apply a monthly standing charge.
A select few banks offer genuinely free business banking on an ongoing basis. Cater Allen has been a popular choice for contractors for many years. Now owned by Santander, you can still apply for a limited company reserve account, which includes up to 30 transactions per month for free. You can only apply via an intermediary – most contractor accountants will be more than happy to help with this.
You will find it hard to find a business current account that pays a decent amount of interest, for obvious reasons. Seasoned contractors will typically open a separate business deposit account to put aside any future tax liabilities (such as Corporation Tax and Value Added Tax). You will receive a higher amount of interest than for a current account, although you may have to give notice to withdraw funds in some cases.
For more ideas to help you compare business bank accounts, read our general guide to limited company banking.
- How to choose a limited company bank account
- How to reduce your business bank account charges
- Do I need a dedicated limited company bank account?
- How do you set up a company bank account?
- ClearSky Accounting - specialist support for contractors
- Visit Hiscox for Professional Indemnity and Business Liability Insurance
- Contractor Finance - up to £30,000, when you need it
- InTouch Contractor Accountants - Personal Online Accounting
- Join PCG - Free impartial start-up advice for contractors.
- Visit Qdos Consulting for tax investigation cover and IR35 insurance.
- 90% Pay Retention for Contractors - Helix Management Ltd