Since April 2022, all VAT-registered businesses have been required to follow the Making Tax Digital (MTD) rules. Making Tax Digital will gradually be rolled out to income tax and corporation tax.

The aim of MTD is to make record-keeping – and filing your returns with HMRC – easier. With the right software, you should not have any problems complying with the requirements of MTD for VAT.

How does making tax digital work?

Do I need to register for MTD for VAT?

Making Tax Digital software requirements

VAT records

Filing your VAT return

1 How does MTD for VAT work?

Making Tax Digital means that you have to deal with tax records and returns digitally

• The basics of VAT – such as when you need to register, how you charge and reclaim VAT, and so on – remain the same.

If you are registered for VAT, you must keep digital records

• You can do this using MTD for VAT compatible software, or an alternative (such as a spreadsheet) together with software that connects it to HMRC's systems.

You must prepare VAT returns using the information in your digital records

• Your software should be able to prepare the return for you.
• You declare that the information is correct and submit it.
• You must file your returns online through HMRC's platform.

2 Do I need to register for MTD for VAT?

Making Tax Digital applies to all businesses registered for VAT unless you are exempt

• This includes businesses that are voluntarily registered for VAT.
• You are automatically exempt if you are already exempt from filing VAT returns online, or if your business is going through insolvency.
• You can apply for exemption if MTD for VAT is impractical. For example, because there is no internet access where you are, or because you have a disability that makes it unreasonable to expect you to use a computer.
• You can also apply for exemption if you have religious objections to using computers.

You need to register online

• You must have MTD for VAT software before you register.
• You register using your Government Gateway online account. If you don't already have a user ID and password, you can set them up as part of the process.
• You'll need details of your VAT registration and your business (eg company registration number and Unique Taxpayer Reference, or your National Insurance number if you are a sole trader).

3 Making Tax Digital software requirements

You must keep your VAT records using software – rather than a paper-based system.

The easiest option is to use software that also allows you to submit your VAT returns online

• Modern online small business accounting packages are MTD-compatible and generally easy to use.

You may want to continue using a different type of record-keeping software

• For example, if you are used to tracking your finances using a spreadsheet.
• If you take this approach, you will need to get 'bridging' software that can connect these records to HMRC.
• Switching to software designed for handling VAT may be a better solution.

The system you use must be fully digitally linked

• You cannot manually copy data from one part of your accounting system to another. For example, if you use a spreadsheet to record your invoices, you cannot then manually transfer the total into another piece of software used to file your VAT return.
• Automatically exporting and importing data qualifies as a digital link as does linking cells between spreadsheets. Manually copying and pasting data does not.
• Accounting software designed to work with Making Tax Digital should automatically satisfy this requirement.
• You may want to take advice from your accountant on what software to use.

4 VAT records

You must keep digital records of basic information about your business

• Your business name and address.
• Your VAT registration number.
• Whether you use any VAT accounting schemes such as flat rate or cash accounting.

You must keep digital records of sales and purchases

• This also applies to other types of 'supply' that are included in your VAT return, such as hiring goods or services.
• For each supply, you must record the tax point (time of supply), value excluding VAT and VAT rate charged.
• If an invoice includes multiple supplies at the same rate of VAT, these can be recorded as a single entry.

The exact requirements vary if you use any accounting schemes

• You can find detailed digital record-keeping requirements in VAT Notice 700/22: Making Tax Digital for VAT.

You must keep copies of invoices you issue or receive

• You can still keep paper invoices as proof of transactions – you do not need to scan them.
• The same applies for other records such as bank statements or till rolls.

5 Filing your VAT return

VAT software should make it easy for you to file your return online

• The software automatically links to HMRC's systems.
• The first time you link to HMRC, you need to enter the Government Gateway details for your business. There is a verification process to make sure that the software is authorised to submit VAT returns for you.
• The authorisation process will be repeated periodically – perhaps every 18 months or when software is updated.

Your accountant can file your return for you if you want

• Many small businesses keep VAT records themselves, but then get the accountant to check and file the return.
• To file your returns, their systems must be digitally linked to your records. The easiest option can be cloud accounting software, where both you and your accountant have access to the same system.
• You must authorise your agent to file the return for you. Your agent emails you a link which you can use to do this online.

Find out more about how to file a VAT return for MTD.

Starting and running a business inevitably involves having to buy things. No matter how resourceful or careful you are, expenses are unavoidable and over the course of a year, costs can mount up significantly.

On the plus side, whether you're running a limited company or you're a self-employed sole trader, freelancer, contractor or ordinary partnership member, you can offset many expenses against your taxable profits to help minimise your tax bills.

Managing your expenses successfully requires good organisation, reliable processes, effort and diligence. Get it wrong and it can turn into a nightmare, while you also risk failing to claim for all of your legitimate business expenses, creating an unnecessary cash flow burden and higher tax bills. So, how can you better manage your business expenses?

1 Find out what expenses you can claim for

Seek tailored professional advice or at very least do your own online research into "allowable expenses" (ie expenses that HMRC allows you to claim). Expenses must all be “wholly and exclusively” for business.

If you're running a business from home, “allowable expenses” can include a proportion of your phone, broadband, heating and lighting costs, your Council Tax, mortgage interest or rent. Allowable expenses can also include stock, materials, insurance and bank charges, office stationery, postage, training, etc. Fuel is a major allowable expense for many small businesses, of course.

Parking, toll fees, train and bus fares are all allowable business expenses, but parking and speeding fines are not. And you cannot charge for fuel or vehicle costs for journeys between your home and usual workplace. Nor can you treat yourself to a daily meal deal on your business, although allowable expenses can include hotel and meal bills if you're away overnight on business.

• Read our guide to allowable expenses for small businesses and sole traders.

2 Have a separate business bank account and card

Sole traders are not required by law to have a separate business bank account, but there are many good reasons for opening one, not least, it enables you to separate your personal and business spending for card and online purchases.

This will save you lots of time and effort when managing your business expenses and help you to better understand how your business spends money, which may enable you to reduce your costs. If you run a limited company, it must have its own bank account, as it is a separate legal entity from you.

• Sign up for an ANNA business account, get a debit card and access a range of time- and cost-saving tools that enable you to better manage VAT, expenses and invoicing.

3 Use a reliable accounting solution

One that connects your business bank account(s), so that transactions are automatically recorded, and all of your expenses and costs are recorded meticulously in real time and categorised for added value and convenience. That way you can compare your outgoings against your income so you can assess your cash flow and the financial health of your business at the tap of a screen or click of a mouse or trackpad.

Your accounting solution should be mobile and offer you access wherever you are. It should also enable you to easily manage your tax admin in line with HMRC rules, especially Making Tax Digital requirements if your business is VAT registered (although other bridging software solutions can enable you to submit your VAT returns using an Excel spreadsheet).

4 Keep your sales receipts well organised

HMRC can request proof of purchase for claimed expenses, so you need to retain sales receipts. These should be kept in a system that makes it easy to categorise and total up your expenses.

Sales receipts must be kept for six years and few people probably want to have to store envelopes stuffed full of them for that length of time. Thankfully, technology provides a better solution. You can now use your smartphone to photograph each receipt, which can be stored safely and more conveniently online in the cloud. Some solutions even enable you to attach an image to the matching transaction in your financial records, which are then updated.

You need to get into the habit of recording and retaining proof of sales receipts as and when you're given them (or as soon after as possible).

5 Assess and minimise your business expenses

With prices rising and often significantly across the board, all businesses are under pressure to manage their expenses and cut costs where possible. Each quarter, at least, you should take time to assess your business expenses and costs. Look for areas where your expenses or costs are rising and try to understand the reasons why.

Always look for ways to reduce your costs, without damaging your productivity or the value that you provide to your customers. Even small savings in a few important places can have a big impact on your cash flow and bottom line.

Need to register for VAT and start providing your customers or clients with VAT invoices? You must ensure that they contain all of the necessary details if they're to be acceptable to HMRC. You may need to know how to produce VAT invoices for sales to international clients and when to send your VAT invoices.

You can register even if your taxable turnover isn't above the VAT registration threshold of £90,000 a year from 1 April 2024 (previously £85,000), which enables you to reclaim VAT on things you buy for your business. The government website GOV.UK explains how to register for VAT.

Here are ten key facts you should know about VAT invoices.

1 You must be registered for VAT to issue VAT invoices

You can only issue VAT invoices once you are registered. They can be in paper or electronic form, but you must retain copies of all VAT invoices you send to your clients or customers – even if you cancel them or make a mistake when you produce one and need to send a replacement. You must retain copies of all purchase VAT invoices that you're given for things you buy for your business. Without these, you are not allowed to claim back the VAT.

2 A VAT invoice is not always needed

You're not required to issue a VAT invoice if:

• your invoice is only for exempt or zero-rated UK sales
• you're gifting goods
• you sell goods under a VAT second-hand margin scheme
• your client or customer operates a self-billing arrangement.

3 To reclaim VAT, you need a VAT invoice

You can't use an invalid invoice, pro-forma invoice, statement or delivery note to try to reclaim VAT, it must be a bona fide VAT invoice provided by your supplier.

4 You don't always have to send a full VAT invoice

For most transactions, you will send a full VAT invoice to your clients or customers. Alternatively, you can send a:

• "modified invoice" for retail supplies costing more than £250 or a
• "simplified invoice" for retail supplies below £250 (and other supplies after 1 January 2013)

5 Full VAT invoices must contain certain information

If you need to send a full VAT Invoice, it must include the following:

• a unique VAT invoice number that follows on from your previous VAT invoice
• your business name and address
• your VAT number (it begins with the letters GB and is followed by nine numbers
• date
• tax point or "time of supply" if this is different to the invoice date
• the customer's name/trading name and address
• description of the goods or services supplied
• total amount excluding VAT
• total amount of VAT in GDP
• price per item excluding VAT
• quantity of each type of item
• discount rate per item if applicable
• VAT rate charged per item (if something is exempt or zero-rated you should make it clear that no VAT has been charged on these items).

A modified invoice is similar to a full invoice, but it also includes the VAT inclusive price of products/services and the total amount including VAT.

6 Simplified invoices need less information

If you issue a simplified VAT invoice, you only need include:

• a unique VAT invoice number that follows on from your previous VAT invoice
• your business name and address
• your VAT number
• tax point or "time of supply" if this is different to the invoice date
• description of the goods or services supplied
• VAT rate charged per item (if something is exempt or zero-rated you should make it clear that no VAT has been charged)
• Total amount including VAT^*.

^*If items are charged at different VAT rates, this should be detailed for each.

7 Payment dates and amounts matter for 'cash accounting'

If you use 'cash accounting' (ie a financial record-keeping/bookkeeping method where revenues and expenses are recorded on the date they're received or paid, not when they were incurred), you must stamp a VAT invoice with the amount of cash paid and the date.

8 There are invoicing time limits

VAT invoices must usually be issued within 30 days of the date of supply or payment (if your business is paid in advance).

9 Rules are different for foreign currency invoices

You do not have to show all amounts on your invoices in sterling. If you issue VAT invoices in a foreign currency or language, you must:

• show the total VAT payable in sterling on your VAT invoice if supplied in the UK
• provide an English translation of any invoice within 30 days if asked to do so by a visiting VAT officer.

10 There are different options when converting foreign currency invoices to sterling

To convert to sterling when producing a VAT invoice you can:

• use the market selling rate at the time of supply
• use the European Central Bank's rate
• use HMRC's period rates of exchange (the rates usually remain the same for each calendar month)
• apply to HMRC to use a different method to account for the VAT.

There are roughly 5.6 million private businesses in the UK and about 2.7 million of them are VAT-registered (source: ONS). More than a million have an annual VAT-able turnover below the VAT-registration threshold of £90,000 (£85,000 between 1 April 2017 and 31 March 2024), but they're registered nonetheless – and there can be many good reasons for doing so.

Not every business gets it right when it comes to managing VAT and errors can be big and small. So, which common VAT mistakes should your start-up or small business avoid making?

1 Entering the wrong figures…

Whether in your VAT accounting software or in your VAT returns, which later creates issues for you when your VAT figures simply don't add up. It can happen innocently enough, through simple lack of knowledge or lack of diligence when entering figures into your VAT accounting software or VAT returns. It's best to correct such mistakes as soon as they come to light is advised, especially now that VAT registered businesses must comply with Making Tax Digital requirements.

2 Trying to reclaim input VAT without having a valid VAT invoice…

Buyers cannot reclaim input VAT if they don't have a valid VAT invoice from a supplier. If you pay a supplier in advance, you can't reclaim the VAT part of the payment if you don't have a valid VAT invoice. If you reclaim input VAT on a supplier's invoice, but fail to pay them within six months, normally you must repay the VAT to HMRC.

3 Leaving out essential VAT invoice details…

For most transactions, you will need to send a full VAT invoice to your customers. It must include:

• a unique VAT invoice number that follows on from the previous VAT invoice
• your business name and address
• your VAT number (it begins with the letters GB and is followed by nine numbers
• invoice date
• tax point or “time of supply” if this is different to the invoice date
• customer's name/trading name and address
• description of the goods or services supplied
• total amount excluding VAT
• total amount of VAT
• price per item excluding VAT (if applicable)
• quantity of each type of item (if applicable)
• discount rate per item (if applicable)
• VAT rate charged per item (if something is exempt or zero-rated you should make it clear that no VAT has been charged on these items).

A modified invoice can be issued for retail supplies costing more than £250. It must contain all of the above, as well as the VAT inclusive price of products/services and the total amount including VAT.

A simplified VAT invoice, which can be issued for retail supplies below £250, need only include:

• a unique VAT invoice number that follows on from your previous VAT invoice
• your business name and address
• your VAT number
• tax point or “time of supply” if this is different to the invoice date
• description of the goods or services supplied
• VAT rate charged per item (if something is exempt or zero-rated you should make it clear that no VAT has been charged)
• Total amount including VAT (if items are charged at different VAT rates, this should be detailed for each).

4 Failing to submit VAT returns and pay any VAT due on time…

Failing to submit a VAT return or pay your VAT bill on time can attract surcharges, as well as interest on any overdue payments. Additional penalties can be charged if you were careless or made a deliberate error – and tried to conceal it.

The rules concerning penalties for late submission of VAT returns and late payment of VAT bills changed for accounting periods starting on or after 1 January 2023. A penalty point is issued for each late VAT Return - even if you have nothing to declare. Once you reach your penalty point threshold, you'll get a £200 penalty. The threshold is set by your accounting period (monthly, quarterly or annually). You’ll get a further £200 penalty for each subsequent late submission while you're at your points threshold.

If you discover you have made a mistake, you must correct it. Errors of up to £10,000 or 1% of turnover (whichever is higher) up to £50,000 maximum can be adjusted on your current VAT return. Find out more about how to correct errors on your VAT returns.

5 Not issuing VAT invoices on time…

VAT invoices must usually be issued within 30 days of the date of supply or date of payment (if you're paid in advance). For goods, the date of supply is the date they're sent, collected or made available. For services, the date of supply is the day the service was supplied or completed if it was supplied over a number of days.

6 Trying to reclaim the VAT after paying a third-party invoice…

Only the recipient of the supply can reclaim the input VAT. As an alternative, you could settle just the net value and get the third party to pay the VAT portion of the invoice and then reclaim the VAT themselves.

7 Issuing a VAT invoice when it's not necessary…

You do not have to issue a VAT invoice if, for example:

• your VAT invoice is only for exempt or zero-rated sales within the UK
• you're gifting goods
• you sell goods under a VAT second-hand margin scheme or
• your customer operates a self-billing arrangement.

If in any doubt about your obligations as a VAT-registered business, seek tailored professional advice.

Good habits are repeated actions or behaviours that have positive consequences. In business, good habits can save you time, money and effort. They can enable your business to be more productive, profitable and successful. And this is true in all areas, including tax, especially following the introduction of Making Tax Digital.

What is Making Tax Digital?

Making Tax Digital (MTD) is a huge government digital initiative that will transform the UK tax system. Under MTD, all VAT-registered businesses will need to maintain digital financial records and use third-party software to submit their tax returns to HMRC.

You can either use MTD for VAT-compatible third-party software or bridging software to connect non-compatible software (including spreadsheets) to HMRC systems.

MTD is being introduced in phases and in the coming years it will affect Income Tax and Corporation Tax. Since 1 April 2022, all VAT-registered businesses (including those that are registered voluntarily) have been required to comply with MTD for VAT rules.

So, what good MTD for VAT habits should you adopt and how could they help your business?

1 Make sure your MTD for VAT digital records are complete

You need to keep digital records of:

• your business name, address and VAT registration number
• VAT accounting schemes you use
• VAT on goods or services you supply
• VAT on goods or services you receive
• any adjustments you make to a VAT return
• “time of supply” and “value of supply” (ie value excluding VAT) for everything you buy and sell
• rate of VAT charged on goods and services you supply.

You may also have to keep digital records of:

• reverse charge transactions (ie where you record the VAT on both the sale price and purchase price of goods and services you buy)
• your total daily gross takings if you use a retail scheme
• items you reclaim VAT on if you use the Flat Rate Scheme.

Did you know? HMRC can visit you (by appointment or not) to inspect your VAT records (they're called “compliance checks”) and if your VAT records are not in order, HMRC can issue a penalty.

2 Regularly update your MTD for VAT financial records

According to HMRC, businesses that use real-time financial record-keeping can become more productive, because their software provides an up-to-date snapshot of their finances, and it may provide additional efficiency-boosting functionality because financial record-keeping can be integrated with other business processes.

You should get into the habit of updating your VAT records on transaction dates (ie when you pay money out or receive income). If that isn't possible, do it as soon after as you can. Make it a regular habit, so that VAT record-keeping remains manageable and not something you dread and avoid. Get it done in good time, long before your quarterly update must be submitted. It could make your life much less stressful each quarter.

3 Always issue your MTD VAT invoices as soon as possible

MTD for VAT invoices must usually be issued within 30 days of the date of supply or date of payment if you're paid in advance.

• For goods, the date of supply is the date they're sent, collected or made available.
• For services, the date of supply is the day the service was supplied or completed if it was supplied over a number of days.

Get into the habit of sending your VAT invoices as soon as you can; then the payment date won't be extended unnecessarily, which is better for your cash flow, because you should get paid sooner. You're also less likely to forget to produce a VAT invoice and it will mean all of your VAT invoices are raised in the correct quarter.

4 Correct any MTD for VAT errors ASAP

Correcting mistakes in your VAT accounting software is simple enough but do it as soon as a mistake comes to light. Then you'll more accurately be able to forecast cash flow and work out your tax liability.

If you've made an error in a VAT return, your VAT account must detail the date you discovered the error, explain how it arose and what you did to correct it.

You can make adjustments (in your next VAT return) to correct VAT return errors if: the value of the error is £10,000 or less; it's not deliberate; and it's for an accounting period that ended less than four years ago. Other errors must be reported to HMRC (you fill out a VAT652 form and send it to HMRC. Penalties and interest can be charged if an error is caused by carelessness or dishonesty.

5 Always submit your VAT returns and pay your VAT bills on time

Making Tax Digital for VAT doesn't alter your VAT return filing deadlines.

• The deadline for submitting your VAT return online and paying HMRC are usually one calendar month and seven days after the end of an accounting period (it's different if you use the VAT Annual Accounting Scheme).

You must pay any VAT due to HMRC by direct debit or online bank transfer. There can be surcharges and/or penalties for late filing and payment. If you submit a late return, a surcharge won't be payable if you pay your VAT in full by the deadline.

Did you know? The rules concerning penalties for late submission of VAT returns and late payment of VAT bills changed to a points-based system for accounting periods starting on or after 1 January 2023. Since then, a penalty point is issued for each late VAT Return you send - even if you have nothing to declare. Once you reach your penalty point threshold, you'll get a £200 penalty. The threshold is set by your accounting period (monthly, quarterly or annually). You’ll get a further £200 penalty for each subsequent late submission while you're at your points threshold.

The right bank account for you will depend on your financial position, how you want to use your bank account and what else matters to you. One person may want a convenient bank account with a local branch they can visit; another might care more about the online app and cashback rewards.

Here’s our guide to the key factors you should consider, and the best bank accounts to match your particular requirements.

Choosing the best personal bank account

1. Your money should be safe in any proper account, but the safest accounts are accounts from banks, building societies and credit unions covered by the Financial Services Compensation Scheme. Some other types of online account are not quite as well-protected.
2. Most people now do most or all of their banking online, using their computer or mobile phone. All the main accounts are available online, but some people prefer the apps offered by newer, online-only accounts.
3. If you need to do your banking in person – or pay in or withdraw cash – you’ll want to be able to do that locally.  A high street bank or building society can be the most convenient, though many banks let you use your local Post Office or PayPoint retailer to pay bills and withdraw cash.
4. Many accounts offer overdrafts, which can be a convenient way of handling short term cash shortages. You need to check what overdraft you qualify for and how high the interest rates are – overdrafts can be very expensive.
5. You may need to qualify for the account. Some premium accounts are only open to people with income above a set level. Other accounts require you to hold a minimum average balance, pay in a minimum income each month and/or pay monthly bills by direct debit from the account.
6. Some accounts offer rewards such as cashback on bill payments, interest on money in the account or free travel insurance. You may need to qualify for the account or pay a monthly fee, so you need to check that the rewards justify the cost.
7. Many accounts offer a one-off switching bonus if you switch your account from another bank. Again, there are likely to be qualification requirements, and you should think about whether the account will suit you longer term.

Best personal bank account for customer satisfaction

The best bank accounts for customer satisfaction tend to be the new, online-only banks like Monzo and Starling. Unsurprisingly, banks like these score particularly well for their online banking service. Opening an account is usually quick and easy, and their mobile apps work well. But this sort of account will not suit you if you value personal, in-person customer service.

You can get a good idea of how the leading banks perform from the customer satisfaction survey of the UK’s 17 largest providers of personal accounts. This survey is carried out every six months on behalf of the UK government’s Competition and Markets Authority.

You may also want to look at Which? Money’s best and worst banks and the Finder Banking Customer Satisfaction Awards 2022. Again, these show the online banks performing well, but also good results for some high street banks and building societies.

Best personal bank account for rewards

The most generous rewards – both cash payments for switching, and continuing rewards while you use the account – tend to be offered by some of the better-known high street banks.

To get an accurate comparison, you need to check the exact details of what qualifies for rewards, whether there is a limit on cashback, any monthly fees and so on. The biggest rewards tend to be the one-off switching incentives which can be as high as £200.

Offers frequently change, so you need to check for up-to-date information. Useful comparison sites include:

• MoneySavingExpert
• MoneySuperMarket

Best personal bank account for savings

If you expect to have significant cash in your account, it may be worth checking comparison sites to see which accounts offer the highest interest rates. But it’s worth noting that the interest rates paid on current accounts often falls for any balance above a set maximum – typically somewhere between £1,000 and £5,000. An extra 1% on £5,000, for example, would be £50 per year.

If you expect to have significant savings, you may well want to open a separate savings account. The best rates tend to be offered by online-only providers, though some building societies have attractive offers, especially for local customers. You can find details of the latest rates for easy access and longer-term savings accounts through sites like Moneyfacts.

You could also consider opening a savings account with Raisin. This makes it easier to switch between different savings accounts (for example, to get the best rate each time), without needing to complete a new application form each time.

Best personal bank account for overdrafts

If you need a bank account that offers an overdraft, your choice of accounts may be more restricted. The online-only accounts – many of which can be opened without a full credit check – tend to offer fairly low overdraft limits. However, if you only need a relatively small overdraft, the rates charged can be lower than for high street alternatives.

The overdraft you are offered, and the interest rate charged, will depend on your personal eligibility – so comparison sites will not give you an accurate picture. At the time of writing, First Direct and Nationwide FlexDirect may offer some interest-free overdrafts to eligible customers.

Apart from any special offers, it’s worth remembering that interest rates on overdrafts tend to be very high. Even the best rates, offered by few accounts, are usually 15% or more, while rates of 35% or more are common. If you expect to be significantly overdrawn for more than a short time, you may want to look at other forms of borrowing.

**Note rates and fees correct on 23/01/23.

Opening a personal bank account – or switching your account from one bank to another – is usually easy. But you’ll want to check that you’ve got all the information you need and that there aren’t going to be any problems.

Can I get a bank account?

You should normally be able to get a bank account if you can prove you live in the UK and are over 18 (or for some banks, 16). But you are likely to find it much harder to open a bank account if you:

• are bankrupt
• have a record of fraud
• are in prison or have recently been released
• are a public figure (for example, a senior politician or military officer)
• are involved with countries or industries with a high risk of money laundering

As well as this, many bank accounts are only open to people who can pass a credit check. If you don’t have a good credit history, you may find it easier to open a basic bank account. A basic bank account doesn’t offer a chequebook or overdraft, but you can pay in and withdraw money, pay bills and use a debit card to make purchases.

Some online-only accounts operate in a similar way, without a chequebook or overdraft, and can also be opened without needing to pass a credit check.

How to open a personal bank account

Start by deciding what kind of bank (or building society) you want to open an account with. Shop around to see which offers the best bank account for your particular needs.

Make sure that you can meet the bank’s requirements for that account. For example, many accounts require you to pay in a minimum monthly income and/or to make a certain number of direct debit bill payments each month to suppliers such as utility companies.

Check the bank’s website or application form to see what proof of identity and address you need to provide. You can normally prove your identity with a passport or driving licence, and your address with a recent council tax or utility bill. If you are opening a joint account with someone else, you will both need to provide documentation.

It’s usually easiest to open an account online (and some of the newer digital banks will only accept online applications). But you may want to contact the bank by phone, or visit a branch, if you find this easier or think you might have problems providing the documentation they want.

It doesn’t usually cost anything to open a new bank account. You may need to pay in some money if the account has a minimum balance requirement. You will also need to agree to pay any future monthly service charges or overdraft fees.

Switching your bank account

If you want to switch from an existing account to another bank, you can normally use the Current Account Switch Service to make the process easier. This service automatically moves:

• your balance
• any existing payment instructions – for example, if your phone and energy companies take direct debits from your current account
• your overdraft (if you have agreed this with your new bank)

The Current Account Switch Service covers almost all the UK’s most popular current accounts. You cannot use the service to switch savings accounts, or accounts in another currency. If you can’t use the switching service, you will need to:

• open the new account
• contact your old bank and ask them to close the old account
• set up any direct debits or other payment instructions with your new bank

Whether you are using the switching service or not, you should avoid setting up new instructions with your old bank in the week before the planned switch.

When you switch account, you should let anyone who might make payments to you – for example, your employer – know about your new bank account details. Even if a payment is accidentally made to your old account, it should automatically be forwarded to your new account, but there can be problems with international payments and some other less common kinds of payment.

Being refused a bank account

Often a bank account can be opened almost instantly, though it may take a few days for checks to be carried out and for any cards or chequebook to arrive. But the bank doesn’t have to offer you an account, and may not give you a reason if they decline your application.

It’s worth asking why they turned you down, and making sure that you haven’t made any errors in the application process (for example, by submitting proof-of-address documentation that isn’t recent enough).

You may also want to check your credit records to see if there is any missing or incorrect information that is hurting your credit score. You can see your credit rating online for free with the major credit bureaus:

It may be worth checking your credit records with the major credit report providers and checking any inaccurate information that could be harming your application:

• Equifax
• Experian
• TransUnion

If there aren’t any obvious problems and the bank still won’t offer you an account, you might want to try other providers. If banks generally don’t want to offer you an account, other options may include:

• applying for a basic bank account
• opening an account with your local credit union
• using a prepaid card
• taking steps to improve your credit score so that you have better access to financial services in the future

Making payments is a routine part of running a business, but also a critical activity that you need to get right. A secure process is essential to minimise the risk of falling victim to fraud or error. Using the right payment methods avoids unnecessary costs and inefficiencies.

The way you manage payments can also make a big difference to your relationships with suppliers. Similarly, employees will want to be sure that you have a well-managed and fair system for handling expenses.

Your payments process

Decide who is authorised to make payments for the business, and what limits there are on the payments they can make. For example, many businesses allow routine payments to be made by the bookkeeper, but require additional approval for expenditure over a set amount. You might also want to allow other individuals to make small purchases out of petty cash to avoid creating unnecessary bureaucracy.

Set up a process for onboarding new suppliers, to make sure that you have the correct account details for any payments and agree payment terms.

You should also have a process for authorising individual payments. For example, this might involve:

• issuing a purchase order to the supplier
• checking the delivery against the purchase order to confirm that the correct supplies have been received
• dealing with any unusual situations, such as partial deliveries or deliveries of faulty goods
• approving the invoice to be paid in accordance with your terms of trade
• making the payment and recording it in your bookkeeping system

A smaller business might have a less formal system, where any invoices received are checked with whoever made the purchase before being approved for payment.

Similar principles apply for other kinds of payments, such as payroll. Again, you need to be sure that you confirm the right payment amounts and account details for each employee, deal with any complications (such as sick leave) and make the right payment on time.

Online bank payments

Using your bank’s online site or mobile app to make payments is a simple way to make payments at low cost.  Most payments are likely to be within the limits your bank sets for individual transactions and for total daily payments. Typical limits for a small business bank account might be £50,000 for an individual transaction and £100,000 per day.

Using your bank’s online site or mobile app to make payments is a simple way to make payments at low cost.  Most payments are likely to be within the limits your bank sets for individual transactions and for total daily payments. Typical limits for a small business bank account might be £50,000 for an individual transaction and £100,000 per day.

Most bank accounts allow you to make payments like this without any additional charge. The payment is made using the Faster Payments System (FPS), which means that it is normally credited to your supplier’s bank account within two hours. Once you have issued the instruction to make an FPS payment, it cannot be cancelled.

Larger payments may need to go through a different banking process and may carry higher fees. For example, if your business is purchasing a property you might need to ask your bank to transfer the amount using a ‘CHAPS’ payment.  The fee for making a CHAPS payment is typically around £25.

Bulk payments

When making individual online payments would be too labour-intensive, you may find it easier to process payments in batches (sometimes referred to as bulk payments).

For example, you might be able to load each employee’s bank account details into your payroll software. At month end, you create a file containing details of all the salary amounts and which accounts they should be paid to. Similarly, your accounting software might allow you to process a batch of invoices for payment.

If you want to use this sort of payment process, you’ll need to check with your bank to see whether your account offers a bulk payments service and what the details are. Some business bank accounts allow you to create bulk payments within the bank’s own online service, while others allow you to use compatible software to create a file which you then upload.

Payments like these are made using a system called BACS Direct Credit. (BACS is also used to handle direct debit payments, automatically collecting recurring payments from customers.) Although BACS payments can take a few days, you can schedule payments in advance so that they reach your suppliers (or employees) on the agreed date.

Banks typically charge a monthly fee (£10-£50) plus a small charge (up to 50p) for each BACS payment you make. Alternatively, under new ‘open banking’ rules, you can use a third party provider such as Comma to manage bulk payments from your business bank account.

Other payment methods

Other bank payment services you may need to use could include:

• direct debits – allowing a supplier, such as a utility company, to take regular payments from your account
• standing orders – instructing your bank to make a regular payment, such as rent
• using a bank debit or credit card – for example, to make an online purchase or pay expenses
• cash or cheque payments – though there are generally few advantages to using these unless you have to
• international payments – paying a supplier in another country, or if you need to cover expenses while overseas

You should ensure you understand how to record and control any payments like these, and are aware of the costs involved. International payments in particular can carry high costs, so it may be worth investigating third party providers if you need to make this sort of payment. Alternatives can include:

• online, international accounts offering multiple currencies, such as Wise and Revolut
• travel cards such as Currensea.

Managing expenses

Handling business expenses can be a minefield, so it’s worth deciding how best to approach this.

If you (or your employees) only need to cover relatively limited expenses, the simplest system can be to cover these out of your own pocket. The business can then reimburse the expenses using its normal payment systems. Legitimate business expenses can generally be repaid without any tax or National Insurance being due as long as you keep proper records. There are special rules if you pay employees’ company car fuel costs.

This may not be an adequate solution for larger businesses or where individuals have substantial expenses – for example, during business trips. You may want to issue corporate expense cards to employees who need them, from your main business bank, a travel card provider like Currensea or a specialist expenses solution like Pleo.

Whatever approach you take, make sure employees understand what expenses are allowed and what paperwork (or the online equivalent) they are required to provide. Small business accounting software often includes features to make managing expenses easier, such as automatic receipt capture.

Payment security and fraud prevention

Proper security helps minimise the risk of fraud. Ensure that access to your IT systems is protected, and in particular access to your accounting systems and online banking. Make sure employees understand the importance of logging off from systems when away from their desk, not sharing passwords and so on.

Make sure that you have made the proper checks on employees who will deal with payments and accounts. They will also need training so that they understand proper procedures and how to spot potential problems. Many bank online payment systems now provide Confirmation of Payee to reduce the risk that you pay the wrong person.

Be aware of high risk situations, such as if you are:

• asked to change a supplier’s bank account details
• told to make a payment urgently, even by someone within your own business
• asked to click on a link in an email

Find guidance on protecting your business from fraud from Action Fraud and advice on common scams from Take Five.