A sole trader is a self-employed individual that runs their business as a single person with no other additional employees. As a sole trader, there usually isn’t any legal distinction between the person offering the services and the business itself. Essentially, a sole trader is their business.
Sole traders are their own bosses. They have complete control and responsibility for any profit they make, taxation and National Insurance they have to pay and for any losses they incur. The most common types of sole trader include tradespeople such as painters, decorators, plasterers, electricians and plumbers, but this extends to freelancers and consultants too. In theory, you can operate as a sole trader within any field of business. Many sole traders find work based on word of mouth recommendations or their own marketing efforts through platforms such as social media.
What Are the Benefits of Being a Sole Trader?
The main benefit of being a sole trader is that you have the freedom to choose when and how you work. You have complete control over your own business and can decide on exactly how you want to run it. As you are the only person within your company, you do not have the responsibility of managing or paying other employees. This means you keep all of the profits, and your financial records can be kept private too — they don’t need to be filed at Companies House in the same way as limited companies.
Setting up as a sole trader is also easy in terms of taxation with Inland Revenue. All you need to do is contact them to inform them you are self-employed. You must do this within the first three months of starting your business. As you are not a limited company, being a sole trader also means less paperwork in terms of accountancy and tax information. Accountancy fees will generally be cheaper as there’s less work for your accountant to do in comparison to the large volumes of paperwork submitted for a limited company. When it comes to managing your taxes, you’ll need to complete a self-assessment tax return to declare information about your earnings to HMRC. You can also operate under any trade name you desire — as long as you stick to copyright laws. Many people that are sole traders often trade under their own name, as they are their own workforce.
Quick business decisions are another benefit of being a sole trader. As the owner and only worker in your business, you can decide the direction you head in and how you will prioritise work. As a result, sole traders tend to forge more personable and specialist relationships with their clients, and they often spend a lot of time actively seeking new clients and building a strong client database. Likewise, if you don’t want to take on a project or you don’t want to work with a certain client, you have the freedom to say no to work.
