If you work as a contractor through a limited company, because you and your limited company are separate legal entities, you must set up a separate bank account for your contractor business. Contractors must set up a business bank account before they can take payments from clients.
Contractors working under an umbrella company can continue to use their personal bank accounts if they so wish because they are being paid as an employee by their umbrella company.
Choosing the best business account for contractors
Personal and business bank accounts don’t need to be with the same bank
Banks run their personal and business accounts as separate operations, which means that even if you like the service provided by your personal bank account, it doesn’t mean they will provide the best service when it comes to opening a bank account for your contracting business.
So it’s a good idea for contractors to shop around at different banks to find the most suitable business bank account.
Business accounts suitable for contractors
Contractors have specific requirements that not all types of businesses have, so it’s not always the best idea to choose a bank because they are well known – while a bank might be known for their business accounts, it doesn’t mean those business accounts are well-suited for contractors.
Free business banking
Many banks try to entice contractors and other types of business to sign up for their business bank accounts with an initial period of free banking, where they typically do not need to pay any fees for 1-2 years. This could offer a great deal, but you need to make sure the cost, when you do start paying, is still a good deal.
Online banking for contractors
Contractors often work for clients in different parts of their town, city, or even country, meaning that there won’t always be a local branch of their bank. This means you should pick a bank that has an option for online banking so you can manage your account wherever you are, with just a mobile or computer.
Interest on cash surplus
For contractors who run their business with a cash surplus, the interest they could potentially earn on their deposits could be a deciding factor in their choice of business bank account.
Company credit and debit cards
Business bank accounts that come with company debit or credit cards, or even chequebooks if required, would allow contractors to charge expense items straight to their business bank account, rather than having to pay with their personal money, and then later claiming back expenses from their business.
Opening a contractor business account at short notice
Contractors might need to start their first contracting job on short notice, which means they’ll need to choose a business bank account that can be opened on short notice – they might, for example, need to show recruitment agencies that they have a business bank account.
It could take weeks from applying for an account to being able to use it because of the anti-money laundering checks banks are legally required to make.
Linking your business bank account to your accountancy service
Many accountants will link up to a contractor client’s bank account in order to provide a more streamlined service. You’ll need to check with your accountant to make sure you choose a bank which allows them to easily transfer the financial data they need – your contractor accountant will also be able to advise you on getting a business bank account with good interest rates and features.
For more detailed information view our section on Specialist Accounting Software
Most contractors don’t need all the extras that often come with business bank accounts
Contracting businesses are often a lot less complex than most other types of business, meaning that they won’t require all the features and services business bank accounts offer, such as a dedicated business specialist at the local branch, or even free software packages.
This means that, as a contractor, you might be able to get a better deal than other businesses because you require a much simpler business bank account.
Accounting for Contractors
Pearl Accountants are Specialist Accountants for Contractors and can help set up your Bank Account in the correct and efficient way.
View our dedicated section on Specialist Contractor Accountants. As a client of ours, we can help you choose the correct bank account and even help set it up for you.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.