There are around 2.8 million sole traders in the UK. It is the most popular, and simplest, way of starting and running a business.
In this guide, we take a look at what exactly a sole trader is, the key things you need to know about becoming a sole trader, and whether it is the right business structure for you.
So, what is a sole trader?
A sole trader is a person who runs their own business as an individual. It is also frequently called being self employed.
Sole traders own 100% of their business. So, if you are thinking of starting a business with another individual, you cannot run it as a sole trader.
If there are two or more of you going into business together, will need to look at setting up a partnership, or forming a limited company.
However, sole traders can employ staff.
The ins and outs of being a sole trader
- As a sole trader, your business and personal finances are considered the same for tax purposes. With the limited company business structure, your business and personal finances are kept separate.
- Working as a self-employed individual means you can start trading right away. You will need to register with HMRC, but you aren’t legally required to do this for several months. You’ll find full details in ByteStart’s Guide to registering as a sole trader.
- As a sole trader, you will pay income tax (PAYE) and National Insurance Contributions on your business profits.
- Whether you are a sole trader or a limited company, if your business has an annual turnover of £83,000 or more (from 1st April 2016), you must register your business for Value Added Tax.
- Sole traders are not required to fulfil the administrative and legal paperwork that is required if you run a limited company. You will have less administrative ‘hassle’ as a sole trader.
- If anything goes wrong with your sole trader business, you are personally responsible to settle any financial liabilities incurred, as there is no distinction between your business and personal assets.
- In some industries, such as IT, you may find it hard to trade as a sole trader rather than via a limited company, so make sure you investigate your industry before starting up. You should always ask an accountant first.
- If you set up as a sole trader, you can always incorporate as a limited company at a later date if you need to.
For more detail, we recommend you read;
- 5 things you must do when you go self employed
- 10 advantages of running your business as a limited company over being a sole trader
- Which business structure should you choose for your new business – sole trader, limited company, partnership or LLP?
- How to set up in business as a sole trader
- Sole trader tax – ByteStart’s guide for start-ups and the newly self employed
Before starting up
Before deciding if becoming a sole trader is the right choice for you, read our guides to the different business structures available to you, and chat to an accountant who will be able to explain the tax implications in more detail.
There is no ‘right’ or ‘wrong’ business structure – it all depends on what you do, your financial situation, the industry you are in, and how large your business is likely to become.
Sole Trader Package
Our long-term company formation partner, Duport, offers a Sole Trader Package which will help you get up and running as a sole trader in a matter of hours. The package will also protect your company name in case you want to use a limited company at some time in the future.
More on starting and running your own business
ByteStart is packed with help and tips on all aspects of starting and running a small business. Check out some of our most popular guides;
- 10 Do’s and Don’ts of writing a business plan
- How to choose the best online accounting software for your new business
- How to create business cards that make a big impression
- ByteStart’s 60-second guide to Value Added Tax (VAT) for start-ups and small businesses
- Which types of insurance must your business have?
Funding your business
- How to maximise your chances of securing a small business loan
- A Guide to ‘Alternative Finance’ – the new funding options for startups and small businesses
- Finding finance for your new business – funding advice for start-ups
- 10 Top tips to ensure your crowdfunding efforts are rewarded
- What to do when the bank says “NO”!
Money & Tax matters
- 10 ways small business owners can pay less tax
- Sole trader tax – a guide for start-ups and the newly self employed
- Dividend tax changes from April 2016 – A summary of the financial effects for small business owners
- ByteStart’s Guide to the main business taxes
- Corporation Tax – How to reduce your bill
Promoting your business
- Making your small business a BIG hit online – A Digital marketing guide for small business owners
- 7 Brilliant branding tips for start-ups
- The “Magic 10” Tips on networking – how the experts build great networks
- How to attract customers from heaven – not clients from hell!
- 10 Top tips for small businesses starting out with social media
- Employers liability insurance – do you need to get cover?
- Becoming an employer – Your responsibilities when you hire staff
- Health & Safety compliance for small businesses – where do you start?
- A Guide to the National Living Wage for small business owners
- Why it’s vital you have clear ‘Terms & Conditions’ for your business