Sole Traders: Everything You Need to Know

Sole Traders Everything You Need to Know

The sole trader business model can be employed by a wide range of companies, and it’s a common choice for entrepreneurs that provide services to individuals or other businesses. Freelance writers, consultants, graphic designers, plumbers, financial advisors, landscapers, and fitness instructors are among those who fall into this category.

As a sole trader, you’re in charge of all parts of your firm and are solely liable for its finances, including losses, invoices, and keeping correct records of your sales and costs. It’s important to remember that the phrase relates to the company’s structure rather than the number of people. While a sole trader is self-employed, this does not always imply that they work alone without employing others.

Privacy Advantage

Because your business details are solely shared with HMRC, sole traders have more privacy. This is not the case for incorporated businesses, as public access to business information, such as your company finances and confirmation statement, is available after these are submitted at Companies House.

Taxopia's sole trader tax returns

You Have Full Control

You’ll have complete control over your firm as a sole trader, including how you run your day-to-day operations, how you wish to scale your business, and what you do with your after-tax income. You won’t have to consider shareholders in your decision-making, and you won’t have to worry about the restrictions that limited corporations must follow.

Fewer Compliance Requirements

As a single trader, you have fewer statutory obligations to meet than a limited company director. There is no requirement to register with Companies House or file an annual confirmation statement, and there is typically less paperwork.

Unlimited Liability

As a lone trader, it’s commonly said that you’re the business. That’s because, unlike a limited company, a sole trader business isn’t a separate legal entity; the law doesn’t discriminate between the owner and the company. You’re personally liable for your company’s debts, and your personal assets may be taken to pay them off.

Termination or Transition Ease

The procedure for closing a sole trader business is straightforward: you must tell HMRC that you have ceased to be self-employed, complete your income tax returns, pay Capital Gains Tax (if applicable), and deduct the costs of ending the business from Taxopia’s sole trader tax returns. In comparison to other business arrangements, it is simpler and less expensive. If your limited company is closing down, you must notify HMRC and file a final Corporation Tax return.

Depending on whether your company is solvent or insolvent, you must also request to have it struck off the register, launch a Members’ Voluntary Liquidation, or arrange for its liquidation. Transitioning from a sole trader to a limited corporation is also easier than the other way around.