A sole trader, or sole proprietor, is defined as a business that is owned and controlled by one person who takes all the decisions, responsibility and profits from the business which they run.

Advantages

  • You don't have the administrative or legal responsibilities of limited companies. A limited company is a separate legal entity in its own right, whereas, a sole trader doesn't have that status, nor the responsibility or admin that go along with it.
  • Essentially, your business income is counted alongside your existing personal income, so the accounting side of your business is very straightforward.
  • Business expenses, and all losses, can be off-set against tax.
  • If HMRC decides you are 'deemed employed', they would seek to recover the higher levels of tax due from your client, rather than you.

Disadvantages

  • You are personally liable for any debts you incur in the running of your business, including law suits, which you wouldn't be under the limited company route. This means personal assets, such as your home are potentially at risk.
  • You are personally liable for any debts you incur in the running of your business, including law suits, which you wouldn't be under the limited company route. This means personal assets, such as your home are potentially at risk.

Questions to ask yourself

  • Will being a sole trader affect my ability to secure work? Find out from your existing or prospective clients whether there is any objection to working with a sole trader. If any of them are reticent, you may wish to factor this into your decision.
  • Are any of your activities likely to incur any large debts? If so, this could put your personal assets at risk. If you aren’t incurring debts, then you should be safe enough as a sole trader, as long as you have the relevant indemnity insurance in place against law suits.

How to set up as a sole trader

If you do decide that the relative simplicity of being a sole trader is the way to go then you must register as self-employed. This can be done online at the HMRC website. You must register within three months of the commencement of business or you will be fined.

Useful resources

IPSE Membership is designed for you...

If you choose to become a sole trader then IPSE have membership options designed for you. Click here for information on IPSE membership.

Starting Out