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If you’re interested in learning about starting a sole trader business you’ve come to the right place. On this page, we explore the basics of running your own incorporated business – from the definition of a sole trader, to the advantages, considerations and your tax responsibilities, should you choose to work this way.
A sole trader is a self-employed person who owns their entire business, which is not legally separate from its owner. As a sole trader, it’s often said that you are the business, unlike people who work through their own limited company, which is legally separate to its owners. With 3.5m sole traders in the UK, working this way is very popular and offers plenty of advantages.
Sole traders are personally liable for losses made by their business or debts owed, whether to suppliers or even HMRC. With unlimited liability, as a sole trader your assets are at risk. For example, if your business is in trouble, your personal assets, such as your home, are not protected. But that’s not to say you shouldn’t become a sole trader. With less paperwork to do and fewer tax responsibilities, running a sole trader business is widely considered the simplest way to work self-employed.
Aside from the day-to-day running of your business, sole traders are responsible for keeping a record of their sales, expenses, profits and in turn, their personal tax liabilities. These include the annual Self-Assessment tax return, class 2 and class 4 National Insurance and if you register for VAT, quarterly VAT returns too.
It’s simple. You need to register for the Self-Assessment tax return and class 2 National Insurance by 5th October in your second year of business, at the latest. You could be fined if you don’t, so it’s worth doing this sooner, not later. For more, please visit the government website.
For more information, read our guide on how to set up as a sole trader. If you’re confused and would like an expert to take care of this on your behalf, don’t hesitate to get in touch with one of our friendly sole trader accountants.
Even if you freelance on the side while also working a full-time job you might need to register as a sole trader. Do this if the following applies:
If you’ve already made the decision to go self-employed and want to work as a sole trader, then you should register sooner rather than later.
Let’s take a quick look at the most obvious ones:
Advantages of being a sole trader
Disadvantages of sole proprietorship
Anyone and everyone, which is why there are millions of sole traders in the UK today. Some popular sole trader examples include:
Confused if you’re a sole trader or self-employed? No need to worry, it’s easily cleared up. Technically, as a sole trader you are self-employed, because you work for yourself. So put simply, you fall into both categories.
The choice is yours, but with self-employment fast becoming the new way of working, operating as a sole trader is a viable, fast and simple structure through which you can start to provide your services.
For more information on our accounting services for sole traders, take a look at our sole trader packages. If you need any advice on setting up your own limited company, our specialists are available to help you – simply request a callback.