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Accounts and Tax




Sole Trader



Business Start Up


About Me


A self-employed person (sometimes called a sole trader) is someone who works for themselves instead of an employer and draws an income from his or her personally run business. If the profits from the work are accounted for on one personís tax return, that person is known as a sole trader. If the profits are shared between two or more people, it is a partnership. Although all the profits go through the sole traders tax return the sole trader business can have many employees if that is the need so do not be confused into thinking these are one-person businesses.

There is no clear definition of self-employment. Defining an employee, on the other hand, is slightly easier as it can generally be assumed that if Income Tax and NICs are deducted from an individualís salary before they are paid, then that individual is an employee.

Importantly, the business has no separate existence from the owner and, therefore, all debts of the business are debts of the owner who is personally liable for all amounts owed by the business. This strikes fear into the hearts of many business owners; you only need to think of the number of business owners who go bust every time a recession comes around and lose their house. Should this be a worry? First and foremost, you must consider the risk to you in any work that you do. Could it go wrong and could you be sued? Is that a realistic prospect or so remote that it does not even warrant thinking about? Or is it somewhere in the middle? Can insurance help? Remember that such insurance is only as good as the disclosures you make and the levels of cover provided. At the end of the day you know your business, your customers and the work that you do, so the risk assessment can only be done by you.

You can start trading immediately. You can trade under virtually any name, subject to some restrictions that are mostly commonsense, such as not suggesting something you are not (connection to government, royalty or international pre-eminence). A B Jones trading as Super Lawns is fine. The full name and address of the owner and any trading name must be disclosed on letters, orders and invoices.

Simple to set up.  
Personal liability.
Simple to run and you are in complete control of the business and make all the business decisions. You also enjoy the greatest freedom from regulation and paperwork. Strictly speaking, you donít even need to maintain a separate bank account but it is advisable to do so.  
Additional cost of the payment for insurance if considered appropriate.
Currently much lower National Insurance Contributions (NICs) than a limited liability company but we expect htis to change.  
Perceived lack of credibility.
Taxation is covered by a few extra pages on your income tax self-assessment and paid twice a year (January and July). Accountancy fees will be lower than if you run your own limited liability company.    
Only you, your accountant and HMRC need know your turnover, profits and income.  
Employment agencies in certain sectors will not deal with sole traders. Instead they may ask you to take up a consulting or contracting position through a limited company which you set up, or through an umbrella company that they may introduce you to.
Tax breaks can be potentially more attractive than a company for a business with losses in the early years. Generally there are more attractive tax breaks for use of home office and use of a car for work.    
Simple to shut down. It is possible to start off as a sole trader and then convert to a company later on as the business grows or risks increase.    
Email or call me on 07775 696052