Compare business bank account for sole traders

Sole trader business accounts at a glance

A business bank account for sole traders keeps your self-employed income and costs separate from your personal money. Here are the key facts for the 2026/27 tax year:

• It isn't a legal requirement, but some banks don't allow business use of a personal account.

• Making Tax Digital applies from 6 April 2026 if your self-employment and property income is over £50,000, falling to £30,000 from April 2027 and £20,000 from April 2028.

• Set aside around 18% of your profit for tax if you earn £40,000: about £5,486 in Income Tax and £1,646 in Class 4 National Insurance.

• FSCS protection is shared. A sole trader's business and personal deposits at the same bank are added together under one £120,000 limit.

• You're covered for bank transfer scams. As a sole trader you count as a microenterprise, so your provider must usually refund authorised push payment (APP) scams up to £85,000 per claim.

Do sole traders need a business bank account?

No, sole traders in the UK aren't legally required to have a separate business bank account. Unlike a limited company, a sole trader and their business are the same legal person, so the money belongs to you either way.

There are still three good reasons to open one:

1. Your bank's terms. Many personal current accounts aren't meant for business use, and a bank can restrict or close an account that is used for regular business payments.

2. Tax records. HMRC expects you to keep records of business income and expenses. With one account for everything, you have to separate business from personal spending line by line.

3. Making Tax Digital. If MTD applies to you, your records must be kept digitally and sent to HMRC every quarter (see below). A separate account makes this much faster.

If you've only just started, you need to register with HMRC as self-employed once you earn more than £1,000 in a tax year. Opening a business account at the same time keeps your records clean from day one.

Do sole traders need a separate account for Making Tax Digital?

Not by law, but it makes Making Tax Digital for Income Tax far simpler. Under MTD, sole traders and landlords must keep digital records, send HMRC a summary every quarter and make a final declaration using compatible software. It is being phased in by income:

The threshold looks at your income before expenses, not your profit. A business account that connects to MTD-compatible software sends your transactions to it automatically, so you only need to check and categorise them. With personal and business payments mixed in one account, you'd sort every transaction by hand each quarter.

What to look for: a direct connection to the software you use, or built-in MTD tools; receipt capture; and automatic categorisation of income and expenses.

How much does a business account cost a sole trader?

For most sole traders, the cost of a business account depends more on how you're paid than on the monthly fee. Charges on incoming payments, cash deposits and currency conversion can add up to more than a paid plan. Here is what typical charges cost over a year for three sole traders:

Illustrative fees, not those of a specific provider. Check each account's price list against how you actually work.

Is a free business account really free? A £0 monthly fee often comes with charges for some transfers, cash deposits, card payments abroad, ATM withdrawals or extra cards. Some accounts are free for an introductory period and then move to a paid plan. Compare the total yearly cost based on your own payments, not the headline fee. For accounts with no monthly fee, see our comparison of free business bank accounts.

Paid plans from around £10 to £30 a month usually add more free transfers, accounting tools or extra cards. They're worth it only if they save you more than they cost, for example by replacing accounting software you'd otherwise pay for.

How much should a sole trader set aside for tax?

Most sole traders should set aside 13% to 23% of their profit for Income Tax and National Insurance, depending on how much they earn. In 2026/27 you pay Income Tax at 20% on profit above the £12,570 Personal Allowance, plus Class 4 National Insurance at 6% on profit between £12,570 and £50,270.

2026/27 rates for England, Wales and Northern Ireland, assuming self-employment is your only income. Above £50,270, Income Tax is 40% and Class 4 is 2%. Scotland has different Income Tax rates.

Payments on account. If your tax bill is more than £1,000, HMRC usually asks for two advance payments towards next year's bill, each worth half of this year's. In your first year this can mean paying up to 150% of a year's tax in one January, so setting money aside every month avoids a cash-flow shock.

How a business account helps. Many accounts let you move a percentage of every payment you receive into a separate tax pot automatically. Some also estimate your tax bill from your transactions. If you hold your tax money for months, a business savings account can earn interest on it until it's due.

Business account or personal account: what's the difference?

A business account is built for receiving payments from customers and tracking business costs, while a personal account is built for everyday personal spending and may not allow business use. The practical differences for a sole trader:

Can you use a second personal account instead? Yes, if your bank's terms allow it. It keeps your records separate, but you won't get a trading name on payments or business tools, and the bank may still ask you to move to a business account if it sees regular business activity.

Is a sole trader's money protected?

If your account is with a UK-authorised bank, the FSCS protects your deposits up to £120,000. But because a sole trader isn't a separate legal entity, your business and personal deposits at the same bank count towards one limit, not two.

Example. You hold £90,000 in your business account and £60,000 in a personal savings account with the same bank. If the bank failed, the FSCS would cover £120,000 of the £150,000. A limited company, by contrast, has its own £120,000 limit, separate from its owner's.

The limit applies per banking licence, not per brand, so check whether your business and personal providers share a licence. If you hold more than £120,000 in total, spreading it across different licences keeps it all protected.

Bank or e-money provider? Many app-based business accounts are run by electronic money institutions (EMIs). Their customers' money isn't covered by the FSCS but must be safeguarded: kept separate from the firm's own money so it can be returned if the firm fails. Some EMIs hold balances with a partner bank, in which case that bank's FSCS limit applies. You can check any provider's status on the FCA Register.

Protection against scams. As a sole trader, you count as a microenterprise. If you're tricked into sending money to a fraudster by bank transfer (an APP scam), your provider must usually refund you up to £85,000 per claim, as long as you report it within 13 months and haven't been grossly negligent.

How to open a business bank account as a sole trader

Most sole traders can open a business account online or in an app in 10 to 20 minutes, and many digital providers approve applications the same day. You usually don't need a company registration number or a trading history.

Before you apply, have these ready:

1. Photo ID: a passport or driving licence, usually with a selfie or short video check.

2. Your home address, and sometimes proof of it.

3. Your business details: trading name (if you use one), what you do, when you started trading and roughly how much you expect to pay in each month.

4. Your Unique Taxpayer Reference (UTR), if you already have one. Some providers ask for it; many don't require it to open the account.

Just started trading? Most digital providers accept new sole traders with no accounts or trading history. You may be asked for a website, social media page or invoice that shows what your business does.

Poor credit history? Opening a business account usually involves identity and fraud checks, and some providers also run a soft credit search. A hard search is more likely if you apply for an overdraft. For more options, see business accounts for bad credit.

Trading name. You can trade under a name other than your own, but it can't include words like "Limited" or "Ltd", or suggest a connection with the government without permission. Some accounts let customers see your trading name when they pay you.

How we compare business accounts for sole traders

We list business accounts from providers we work with commercially. Our panel changes over time and doesn't cover the whole market, so other accounts may suit you better.

For every account we check that it accepts sole traders, then compare monthly fees, charges on incoming and outgoing payments, cash deposits, currency conversion, accounting and MTD tools, and whether your money is protected by the FSCS or safeguarded. We check details against each provider's own terms and price lists every week, and whenever a provider changes its prices. Partner products are shown first by default; you can sort by monthly fee instead. For more, see How We Rank.

Sources

• UK Government – Making Tax Digital for Income Tax for sole traders and landlords

• UK Government – Self-employed National Insurance rates

• UK Government – Income Tax rates and Personal Allowances

• UK Government – Register as a sole trader

• UK Government – Understand your Self Assessment tax bill: payments on account

• FSCS – Small businesses & limited companies protection

• PSR – APP scams reimbursement, maximum level of £85,000

• FCA – Financial Services Register