Advantages and Disadvantages of Being a Sole Trader

One of the first decisions that you’re likely to make when going self-employed is choosing the way in which you provide your services to clients.

So, will you form a limited company? Band together with someone else and create a partnership? Or might you join the 3.5m other people working as sole traders today in the UK? If you’re interested in becoming a sole trader, look no further. To help you make up your mind, we’ve weighed up the advantages and disadvantages of working as a sole trader below.

Firstly, what is a sole trader?

Sole traders are self-employed people who own their entire business and run it as an individual. In other words, there’s no legal distinction between you and your business, which is why it’s often said that sole traders are their business. To learn more about what it means to be a sole trader, view our sole trader business guide.

Advantages of being a sole trader

From a fast and simple start-up process to relatively few reporting responsibilities, let’s take a look at the advantages of being a sole trader:

Sole trader accountancy packages

Starting up a business on your own, as a sole trader, is an exciting time. It can offer flexibility and full control. However, navigating the world of self-employment and sole trader accounting can be overwhelming, which is where Caroola Accountancy comes in.

As sole trader accountants, we have a team of dedicated accountancy specialists and tailored accountancy packages to match. Our team of experienced professionals will make sure you get the best advice to keep you and your business growing.   

Sole trader



A powerful solution backed by experts when you need them. Manage your business on the go with FreeAgent and get your SATR done without fuss.

What's included?
  • Self assessment
  • Annual accounts
  • FreeAgent
  • HMRC registration

Sole trader +



Get a much more personalised and tailored service from a dedicated accountant who'll also manage your VAT returns in a compliant way.

What's included?
  • Everything in Sole Trader, PLUS:
  • Dedicated accountant
  • VAT registration and filing

Disadvantages of being a sole trader

We’ll now drill down into some of the potential drawbacks and so-called disadvantages of being a sole trader:

1Unlimited liability
Unlimited liability means you’re responsible personally for any debts and losses of the business, whether that’s outstanding tax, office rent or equipment costs. So if you run into financial difficulties, personal assets such as your house could be at risk.
2Potential credibility issues
For whatever reason, a sole trader business doesn’t carry with it the perceived prestige of a limited company. Given this could affect the clients that you’re able to attract, it’s worth looking into the most common structure for successful freelancers or businesses that you would like to emulate before making your decision. If you intend to work through recruitment agencies, they may insist on limited company status. It is worth considering who your clients will be before making a decision on your operating structure.
3Sole responsibility
On the one hand, having full control of your business is a big advantage of sole trader life. On the other, it means that you’re responsible and accountable for everything. That said, for many self-employed people this is exactly what they want. Those working through their own limited company often find themselves in this boat too, even if they have the opportunity to bring other people into the business as shareholders or directors.
4Fewer tax planning opportunities
Sole traders have fewer tax planning opportunities. This is because the profit you make is subject to Income Tax in the financial year in which it's earned. You can’t, for example, leave profits in your business and pay yourself these further down the line or in the next tax year as you might when running a limited company.
5Barriers to finance
Generally speaking, lenders are more wary of sole traders because of the unlimited liability aspect and, in some cases, because of the private nature of these businesses. As a result, when sole traders do secure finance, the amount you’re able to borrow might be lower than a limited company and the rates not quite as favourable.
6Sale limitations
Selling your business as a sole trader or having someone take it over when you retire isn’t as straightforward as it is for a limited company. Not being legally separate from its owner makes things slightly more complicated and you would need to organise a transferral of assets, over to the new owner.










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