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The sheer number of sole traders in the UK tells you everything you need to know about working this way.
Quick and simple to get started, not to mention with fewer tax obligations, it’s hardly surprising that there are a staggering 4.6 million sole traders in the UK.
But what specifically does working as a sole trader entail? For example, what is a sole trader? Why is it such a popular way to work self-employed? What are the challenges? What are a sole trader’s responsibilities?
In this jargon-free guide, we break down the basics and explain what it really means to be a sole trader.
Sole traders own their entire business as individuals. It means, as a sole trader, you have 100% control of the business, its assets, profits and also its liabilities.
Unlike owners of limited companies, there’s no legal separation between a sole trader and their business. It’s why, as a sole trader, people might say ‘you are the business’.
Now that you’ve got a firm idea of what a sole trader is, legally speaking, we’ll look at what it means to be one - from your responsibilities, to the pros and cons of operating in this manner.
Sole traders are responsible for all aspects of their business - whether that’s winning business, billing clients, paying overheads and, of course - tax. This is the case even if you hire employees or outsource certain tasks, such as accounting, marketing or administration.
From a tax perspective, sole traders’ responsibilities are:
We mentioned that it’s quick, simple (and cost-effective) to set up as a sole trader, but what other advantages can sole traders experience?
For more information, read our guide to the advantages and disadvantages of being a sole trader.
How about the challenges you might face as a sole trader? Let’s take a quick look.
Are sole traders impacted by IR35? In a word, no. IR35 only applies to individuals operating via their own limited companies - otherwise known as intermediaries. It’s not a consideration for sole traders.
To learn more about this topic, take a look at our guide to IR35 for sole traders.
Should you become a sole trader or form a limited company through which you work? Which is best? In truth, the route you take is likely to depend on your priorities and ambitions - one isn’t better than the other.
You can learn more about making this decision in our guide to sole trader vs limited company.
To conclude, being a sole trader means you get to experience being your own boss and all of the benefits that come with this. True, some responsibilities come part and parcel of self-employment, but the number of sole traders in the UK is proof that operating in this manner is tried, trusted and enjoyed by millions.
For more information, and to find out how we can help you on your journey as a sole trader, simply get in touch.
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Appointing an accountant can save you time and stress when starting up on your own. If you would like to speak to someone about any of the above information or any other queries you may have, arrange a callback and a member of the team will be in touch.