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It’s estimated that there are over 3m sole traders operating in the UK, and recent research revealed that, perhaps surprisingly, almost half of them were aged 50 or older. The most likely scenario is that they will have developed their skills throughout their careers and reached a point where they are financially stable and ready for a new challenge in self-employment, with more control over their workload and hours in the run up to retirement, and the sole trader business structure is the easiest way to make that leap.
Operating as a sole trader has various advantages including being able to set up your business quickly and easily as well as relatively low admin and reporting requirements. In this post we’ll examine the key sole trader advantages and why personal ownership is such a popular business structure, especially so for new startups.
Quick, Easy and Affordable Business Setup
A key advantage of the sole trader business structure is how easy it is to get your business set up and trading. There’s no need to incorporate or register with Companies House so there’s no need to produce Articles and Memorandums of Association and everything else that’s required to set up a limited company.
You just need to decide on a business name and register for Self-Assessment with HMRC and you’re good to go. Although it’s not mandatory for sole traders, it’s a good idea to open a business bank account, such as Mettle by NatWest, to separate your business and personal finances and also take out any relevant contractors insurance to protect yourself and your business.
More Time to Focus on Your Work
Once set up and trading, administration and reporting obligations are far less onerous for sole traders than if they were incorporated. Sole Traders don’t have to deal with Corporation Tax Returns, Confirmation Statements, maintaining a Statutory Register, submitting annual accounts to Companies House or conducting an annual general meeting.
They just need to maintain records of their expenses and income, file an annual self-assessment tax return and fulfil their VAT obligations if registered. Ultimately less time spent on admin and red tape means that you have more time to work and grow your business, and working with a sole trader accountant also helps significantly in this respect.
Full Autonomy Over Your Business
As a sole trader you are the business and you have full control and complete autonomy over all business decisions. There is no need to consult with other shareholders or directors to get their approval which enables you to make decisions swiftly and respond decisively to opportunities or threats, meaning your business can operate flexibly and adaptably.
And control goes beyond business decisions. You also control what jobs you do, who you do them for and when you do them. You are your own boss after all! This enables sole traders to find the right balance between work and life to suit their circumstances and interests.
You Control Your Profits
As a sole trader you get to keep all your profit after income tax has been levied against it which is a huge incentive to achieve business growth. In addition, sole traders generally benefit from low overheads which helps to drive up the profit margin.
In limited companies with more than one director and shareholder, profits have to be divided up, Corporation Tax has to be paid as well as income tax on salary and dividends above the personal and dividend allowance thresholds which increases complexity.
Things are much simpler for sole traders and profits after tax can be withdrawn through owner’s drawing and used however the owner sees fit, whether that for personal use or to reinvest back into the business.
Your Personal Details Remain Private
Sole traders benefit from keeping their personal details out of the public domain which can be important for those concerned about confidentiality and protecting their privacy. Various details regarding Limited Companies are publicly available on Companies House including director and shareholder names, the registered office address and annual accounts, but this is not required for sole traders.
Are There Any Disadvantages for Sole Traders?
As with all business structures there are advantages and disadvantages and it’s important to consider both. As a sole trader you don’t have the same level of financial protection as limited companies who benefit from limited liability, meaning that their potential debt is limited to the amount they have invested in the business which safeguards personal assets from creditors.
This is not the case for sole traders who are personally liable for any business debts or legal costs which are in theory uncapped so it’s important for anyone considering operating as a sole trader to consider the level of financial risk they are prepared to face.
It’s also generally more difficult for sole traders to secure investment and raise capital to invest in their business and there is less scope to leverage tax efficiencies too.
Sole Trader Accounting with Gorilla
One of the best decisions you can make as a sole trader is to work with an accountant, and as the UK’s most trusted accountants, Gorilla are expert accountants for sole traders.
Our sole trader accounting package is just £59 + VAT per month. You will work with your own dedicated accountant who will expertly manage all your business and personal accounting needs. They will be on hand to provide you with unlimited support and advice and a same working day response to your queries is guaranteed and award-winning FreeAgent accounting software included free of charge.
If you have any queries regarding if sole trader is the right business structure for you, or about our sole trader accounting service, please request a call back here or speak to an accountant on 0330 024 0406.
