Here is a simple guide to some of the most important features of Sole Trader businesses.
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
Essential facts about Sole Traders
- 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
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
How to 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 stationery / contracts)
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
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
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
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
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 a confirmation statement (not to be confused with a tax return)
- Accountancy costs tend to be cheaper for Sole Traders
Sole Trader credibility
- Rightly or wrongly, 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
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
