What is the £85,000 FSCS and does it apply to business bank accounts?

The Financial Services Compensation Scheme (FSCS) is a UK government-backed organisation that protects customers of financial services firms if those firms fail.

The FSCS was established in 2001 under The Financial Services and Markets Act 2000 following the collapse of several high-profile financial institutions.

If the Prudential Regulation Authority (PRA) has authorised a failed bank, the FSCS will usually automatically pay customers’ money back within seven days.

In this guide, we look at how the FSCS protects limited company and sole trader funds.

How does it protect individuals?

The FSCS protects customers’ deposits up to £85,000 per person per bank or building society. If your bank or building society fails, your business can claim back up to £85,000 of your deposits.

The FSCS also protects customers’ investments up to £50,000 per person per type of investment.

If you have invested in various products, such as shares, bonds, and unit trusts, you can claim back up to £50,000 for each type of investment.

The level of protection depends on the type of business you own

Importantly, the FSCS does apply to business bank accounts.

If your business bank account is held with a UK-regulated bank or building society and the bank fails, you can claim back up to £85,000 of your deposits.

However, the £85,000 limit applies to a single entity.

This means that if you’re a sole trader and you have a personal and business account at the same bank, you can only make one single claim should the bank fail.

This is because, legally speaking, a sole trader’s business and personal finances are treated as ‘one’.

A limited company is a separate legal entity from its shareholders, so the £85,000 limit would apply to both the company’s account and any individual director or shareholder, should the accounts be at the same financial institution.

Here is an extract from the FSCS website, which explains this further:

If your business is a separate legal entity, e.g., a limited company or LLP, you could claim up to £85,000 for each account. If you’re a sole trader (e.g., Mr Smith t/a Smith Motors) you wouldn’t be entitled to two separate claims – you could claim up to £85,000 in total. Although joint account holders are usually entitled to make separate deposit claims for £85,000 each, if the joint account holders hold the account as partners in a business, then the business partnership is only entitled to a single claim of £85,000 (not one claim per business partner).

The FSCS doesn’t protect all business accounts

However, some types of business bank accounts are not protected by the Scheme. These include:

• Accounts held by banks that are not regulated by the Financial Conduct Authority (FCA)
• Accounts held by investment firms
• Accounts held by insurance companies
• Accounts held by overseas banks

If you are unsure whether your business bank account is protected by the FSCS, check out these useful FAQs.

Additional things to note

Here are some additional things to keep in mind about the Scheme:

• The FSCS does not cover all types of financial losses. For example, the FSCS does not cover losses caused by market fluctuations or fraud.
• The FSCS does not cover losses that are caused by your own negligence.
• The FSCS can only pay out claims once the failed financial institution has been wound up, a process that can take several years.

If you have any questions about the FSCS, contact this helpline – 0800 678 1100.