what is a sole trader?

Here is a simple guide to some of the most important features of sole traders. More detailed guides to individual aspects of sole traderships can also be found in related guides on the left

sole trader basics
  • A sole trader is a type of company owned by just one person
  • Both the company and the owner can be referred to as a "sole trader"
  • sole traders may not take on partners of shareholders
We want to start a business together, so sole trader isn't right for us
sole traders beware
  • As a sole trader, you are the company and the company is you
  • That means if the company accrues debt or goes bust, so do you
  • If the company gets sued, so do you
As a homeowner with savings, sole trader sounds a bit risky to me
sole trader size
  • Sole traders are typically small companies because they are owned by one person willing to take on the liabilities of that business
  • Sole traders may still employ staff and open a bank account
  • There is nothing to say a sole trader can't make large profits
I want to earn a little money on the side. Sole trader sounds perfect.
start as a sole trader
  • Sole trading can be a good option if you want to test a business idea
  • A sole trader may decide to incorporate a Limited company at a later date
  • It can create extra work and cost if you change from a sole trader to a Limited company (e.g. changing stationary / contracts)
I have an idea that I just want to test. Being a sole trader may suit my needs
naming a sole trader
  • Sole traders can still have creative company names but often they carry the name of the owner
  • Sole traders cannot use names that imply they are not sole traders (e.g. XYL Ltd or ABC PLC)
  • Sole traders must be careful not to infringe existing intellectual property or trademarks when choosing a name
I have an idea for a brand. It's good to know sole traders are not restricted
sole traders and tax
  • Sole traders still pay tax on profits
  • The sole trader (owner) must register with HMRC and file a self assessment tax return annually
  • Sole traders must also pay tax on salaries and national insurance for employees
  • Typically, the more profit you make, the less tax efficient being a sole trader is
I anticipate high profit quite quickly. A sole trader may not be efficient for me
sole trader types
  • Sole traders may work in most industries and provide most services
  • Some sectors with regulatory bodies may stipulate that you must be a Limited company
I'm a personal trainer so being a sole trader is right for me
sole trader privacy
  • Sole traders can operate more privately than incorporated companies
  • Ownership and accounts must be made known to HMRC but are not held on the public register
I don't want anybody to know about my business until it takes off
sole trader maintenance
  • Sole traders are subject to fewer statutory requirements (red tape!)
  • Sole traders must keep their accounts up to date, but do not have to maintain a company register or submit an annual return (not to be confused with a tax return)
  • Accountancy costs tend to be cheaper for sole traders
Paperwork is not my strong point. If being a sole trader means less of it - I'm in
sole trader credibility
  • right or not, there is a common perception that sole traders are not as credible or stable as Limited companies
  • Some companies and suppliers will only do business with Limited companies
  • This tends to be true of larger companies or with larger companies or credit requests
I provide services to large companies. Being a sole trader may count against me
selling a sole trader
  • Sole traderships can be difficult to sell or pass on. That's because the owner is the business
  • Whilst the going concern can usually be passed on, contracts and certificates issued to the proprieter would need to be re-issued
Exit strategy is important to me. I can't be a sole trader


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