What is a Sole Trader Business?

If you're interested in learning about starting a sole trader business, you've come to the right place. This page explores the basics of running your own incorporated business – from the definition of a sole trader to the advantages, considerations, and tax responsibilities.

Sole Trader Definition

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, you are the business, unlike people who work through their own limited company, which is legally separate from its owners. With 3.5m sole traders in the UK, working this way is very popular and offers plenty of advantages.

What Does It Mean to be Legally Separate?

Sole traders are personally liable for losses made by their business or debts owed, whether to suppliers or HMRC. With unlimited liability, your assets are at risk as a sole trader. For example, if your business is in trouble, your assets, such as your home, are not protected. But that's not to say you shouldn't become a sole trader. With less paperwork and fewer tax responsibilities, running a sole trader business is widely considered the simplest way to work self-employed.

What are a Sole Trader's Responsibilities?

Aside from the day-to-day running of your business, sole traders are responsible for keeping a record of their sales, expenses, profits, and their 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.

How to Start Working as a Sole Trader

To start working as a sole trader, you need to register for the Self-Assessment tax return and class 2 National Insurance. You need to do this by the 5th of October in your second year of business, at the latest. If you don't, you could be fined, so it's worth doing this sooner, not later. For more, please visit the government website.

For more information, please read our guide on how to set up as a sole trader.

When Should you Register as a Sole Trader?

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 decided to go self-employed and want to work as a sole trader, then you should register sooner rather than later.

What are the Advantages and Disadvantages of Running a Sole Trader Business?

Advantages of Being a Sole Trader

Disadvantages of Being a Sole Trader

Who Can Work as a Sole Trader?

Anyone and everyone, which is why there are millions of sole traders in the UK today. Some examples of sole traders include:

Am I Self-Employed or a Sole Trader?

Technically, as a sole trader, you are self-employed because you work for yourself.

Should You Become a Sole Trader?

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.

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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.

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