Trading as a Sole Trader
As soon as you start working for yourself, you will be classed as a self-employed “sole trader”, this happens even if you’ve not let HM Revenue and Customs(HMRC) that you have started trading.
As a sole trader, you run your own business as an individual. All business profits are yours to keep after you have paid the required from these profits.
Trading as a ‘Sole trader’ means you are responsible for the business, but can also employ staff to work for you and grow the business and it’s profits. Being a ‘Sole Trader’ does not mean that you have to be alone – you can hire staff.
A ‘Sole Trader’ is personally responsible for any losses your business may incur.
Sole Trader Repsonisbilites
- Submit a Self Assessment tax return every year
- You must pay Income Tax on any profits of your business
- Pay your National Insurance
- Keep all records of your expenses and sales
- Register for VAT if you expect your takings to be more than £83,000 a year
- Your businesses debts
- Pay bills for anything related to your business
- If you are a contractor or sub-contractor in the construction industry you will need to register with the Construction Industry Scheme (CIS)
Advantages and Disadvantages of being a Sole Trader
A sole trader is a type of business owned and run by a single person on a self-employed basis. Most people thinking of becoming self-employed will choose between sole trader and a limited company. A limited company is a company where the owner and the business are separate legal entities – below are the advantages and disadvantages of running a business as a sole trader.
Advantages of being a Sole Trader
Make faster decisions
Businesses bigger than sole traders often have multiple levels of management, owners, and stakeholders, all with competing ideas and goals – it can mean even the most simple decisions can take a long time. As a sole trader, you’ll be the owner and the manager, so you get to make all the decisions without anybody telling you what to do – it means you can make decisions quick enough for them to matter.
Sole traders keep all of their profits
A sole trader gets to keep all of the profits (after tax) that they make. There’s no Corporation Tax to pay, and there’s usually no employees to pay.
Accounting is cheaper for sole traders
Sole traders are only legally required to complete a profit and loss account (as well as filing yearly Self-Assessment Tax Returns) – limited companies have to do a balance sheet and cash flow. Accountants usually charge sole traders lower fees than they do limited companies because there’s less work for them to do.
Information about a sole trader isn’t public
Limited companies don’t get to keep certain information private, as they have to register with Companies House, which means it is in the public domain.
Disadvantages of being a Sole Trader
A sole trader is personally liable to pay any debts incurred
Because, unlike limited companies, sole traders are not legally separate from the business they run, a sole trader is personally liable to pay any debts incurred. This could be especially troublesome if the debt forces the sole trader to stop trading, as they will not be getting any income, but will still owe money.
Sole traders find it difficult to get large clients
Many businesses, especially the larger ones, see sole traders as small and a liability, which means it can be difficult to get work from larger clients. Often people working as a limited company will find it easier because they will be perceived as being bigger, even though a limited company can still be owned and managed by a single person.
Sole traders get no sick pay
Sole traders don’t get paid if they’re not working, so that could mean trouble if they fall ill – they will not be making money, nor will their business be providing the service they had agreed to do for another person or business. There is also a risk of clients looking elsewhere when you are unable to provide your services.
Sole traders still need to do some accounting
Though accounting is a lot simpler for sole traders, you still need to do things like keeping receipts, paying tax (and even VAT if you earn over £83,000 per year) and National Insurance. Fortunately, 1Stop is full of specialist sole trader accountants who will do most of the work for you for a fixed monthly fee.