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Sole Traders

What is a Sole Trader?

Last updated: 18 March 2022

What is a Sole Trader?

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

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