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What is a sole trader?

November 11, 2014

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

  • Once you have registered with HMRC, you can start trading right away. You should not delay telling the authorities, or you may have to pay a penalty.
  • Sole traders are taxed under the self assessment tax rules. You will be required to fill in a tax return each year, which will contain details of all the money you have made.
  • 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;

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 help on ByteStart

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