Sole trader is the most popular business structure in the UK with well over 3 million sole traders currently operating. In this post we’ll examine the reasons why as we outline the main sole trader business benefits and why this can be the right structure for you if you’re looking to make a quick move into self-employment.
Get Up and Running Quickly and Easily
A key sole trader advantage is how easy it is to get your business set up. Setting up a limited company is a more complex process due to the company being a separate legal entity from the owner. Limited company setup requirements include a memorandum and articles of association, appointing company directors and shareholders, determining persons with significant control and completing the company incorporation process with Companies House. You would also have to pay company incorporation and registration fees which sole traders don’t have to do.
By contrast, sole trader setup is simple and cost-effective. You just need to decide on a company name and register with HMRC for self-assessment, obtain a unique taxpayer reference, register for class 2 National Insurance Contributions and register for Value Added Tax if you expect your turnover to be more than £85,000. Once that’s done, you’re good to go! This makes personal ownership the quickest and easiest route into self-employment.
Minimal Compliance and Regulatory Obligations
Once you’re operating as a sole trader, you’ll benefit from having less reporting, tax and compliance obligations compared to a limited company. Sole traders aren’t required to prepare and file annual financial statements, pay corporation tax and there’s no need to maintain a statutory register or hold annual general meetings. This means less paperwork, less admin and more time for you to focus on core activities and growth.
Full Autonomy Over Your Business
Another sole trader advantage is the fact that you have full and total control over your business and can work on your own terms. You make the decisions regarding all matters including daily operations, what you charge and business strategy over the long term. Having complete control enables sole traders to mould their businesses without compromise.
This level of control also empowers sole traders to operate adaptably and flexibly. Decisions can be made quickly on the fly without having to consult and discuss with a partner or convene company directors and shareholders to get approval for key decisions. This means your business can react and respond quickly to unforeseen circumstances or events, threats, a change in market conditions or to take advantage of a new opportunity.
Having full control enables sole traders to achieve the work/life balance that’s right for them. With full control over the jobs they take and the hours and days that they work, sole traders are able to strike the right balance between their work, their lifestyle and commitments they have outside of work.
Build Strong Customer Rapport
As a sole trader, you are the face of your business and you have a direct line of communication with your customers and clients which can only help you build strong relationships. By nurturing and building these relationships over time, as well as providing a great service, you develop trust, rapport and loyalty which will mean that repeat business is a certainty. It also makes word of mouth recommendation and referrals more likely which will all contribute to helping your business grow.
Control Over Your Profits
When you operate through a limited company, technically your net profits will belong to the business and they will in part need to be distributed between shareholders if there’s more than one. The picture is different, however, for sole traders.
Thanks to personal ownership, the net profits that the business generates belong to the owner who has direct access to them and flexibility in terms of how they are used. Through owner’s drawing, you can withdraw them for personal use.
Profits can also be retained and invested back into the business to buy new equipment or on marketing activity to help scale up operations. Overheads are generally low for sole traders which helps to boost profit margins.
Safeguard Your Privacy
Sole Traders have a greater degree of privacy regarding their personal information in comparison to limited companies. When you trade through a limited company, it’s mandatory that some information regarding your business is available in the public domain through Companies House. This includes company accounts, financial statements, company director details and the registered address of the business.
Sole traders don’t have to disclose this information meaning there’s fewer public records available regarding their business which allows them to keep their business and financial details private.
Is Sole Trader The Best Business Structure For You?
Before deciding on the type of structure that’s right for you, it’s important to consider the advantages and disadvantages, and sole trader is no different. As a sole trader you are the same legal entity as your business which means that, should your business incur debt, you are personally liable and your personal assets could be at risk from any creditors. This is known as unlimited liability.
This is not the case with a limited company where there is a legal distinction between the business and the owners, known as limited liability. Limited liability means the company is technically liable for any debts and losses rather than the owner. As such, there’s less financial risk if you operate through a limited company. Limited companies also benefit from tax advantages including being able to split remuneration between a combination of salary and dividends which can, if done right, decrease tax liability and increase take home pay.
Many self-employed people start out in business as a sole trader, build their company and in time they incorporate to take things to the next level and our company incorporation service will handle the whole limited company set up process for you. Everyone’s circumstances are different, however, so If you’re unsure which business structure is right for you, our team is here to help. You can speak to an accountant today on 0330 024 0406 or request a call back here.
If you’re a sole trader looking for an accountant, our sole trader accounting package will expertly take care of all your business and personal accounting needs for only £50 + VAT per month. You’ll work with your own dedicated accountant who will provide unlimited support and advice with a guaranteed same day response to your queries. You also receive full access to market-leading accounting software FreeAgent. If you’d like to join us, please complete our application form here.
