Becoming a sole trader is the most straightforward way to start a business. This article will provide an overview of what it means to be a sole trader and how it could be the answer to your future business.
What is a sole trader?
A sole trader is a self-employed person who trades on their own. If you set up as a sole trader, you will run your own business and be able to retain all of the business profits – after tax. A sole trader is legally responsible for their business, this includes being personally responsible for any business debts, being liable to income tax on profits and the requirement to file a self-assessment tax return annually.
These are probably the biggest disadvantages to being a sole trader over running a limited company – where you would be a separate entity to the business. There are many pros and cons to being a sole trader vs a limited company and some may be more important to others, depending on factors such as personal preference and financial means.
Why becoming a sole trader could benefit you
A sole trader business is the simplest structure and the largest in the UK, comprising 62.7% of businesses. There are a wide number of benefits to being a sole trader and these include:
1. Being your boss – You aren’t answerable to anyone else and have full control over all aspects of your business. If something isn’t working well, you don’t need to endure it and can change it swiftly without having to wait for the views or the permission of someone else. In addition to this, if you don’t want to work Sundays for example – nobody can make you!
2. It’s simple to start - You can set up as a sole trader pretty much immediately, all that is required is that you register as a business – for tax purposes, then you’re good to go.
3. Little-to-no set up costs – Depending on your trade, you may already have the skill, products or talent to begin your business without any financial outlay. The need for financial expenditure and/or outside professional help to begin your business isn’t always a necessity. This differs for a limited company, where you must pay Companies House fees to start trading.
4. Simple accounts – You should submit a self-assessment tax return, which can be done online or over the phone once a year. You may wish to seek out an accountant if your business grows but the only essential thing is to keep track of your business incomings and outgoings.
5. Tax rebates – you will be able to claim capital allowances for any assets purchased for your business throughout the year, e.g business vehicles, electronics, equipment – even a clothing and laundry allowance is included. If you run your business from home you could also include the running costs of your property, including; cleaning costs, property repairs, mortgage interest, rent, council tax and utilities.
6. The profits – As a sole trader, you keep 100% of your profits, without splitting with investors or partners.
7. Privacy - A sole trader can operate as a completely private venture, while a limited company must provide Companies House with records and accounts that the public can access.
