Advantages and Disadvantages of Being a Sole Trader
There a multiple benefits to being a sole trader, we'll discuss both the advantages and disadvantages.
When you decide to go self-employed, choosing the right business structure can be overwhelming. Should you form a limited company, create a partnership, or become one of the 3.5 million sole traders in the UK?
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.
If you're feeling lost in this decision-making process, don't worry. Let's break down the advantages and disadvantages of being a sole trader to help you make an informed choice.
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:
1
Get started immediately
As a sole trader, you don’t need to register your business with Companies House. This is because it isn't a separate legal entity, in the way that a limited company is. As a result, a benefit of working as a sole trader is you can start working right away.
2
Simple registration
The only thing sole traders are legally required to do after having started working this way, is register as self-employed for tax purposes. This is effectively you telling HMRC to expect your Income Tax via the Self-Assessment Tax Return. Registering is a simple process and in many cases doesn’t necessarily need to be done the moment you go self-employed. Find out how to register as a sole trader.
3
Fewer fixed overheads
As a sole trader, your start-up costs are minimal - if anything at all. Better still, with few annual accounting obligations, you can keep your fixed overheads low, which is important for those just starting out.
4
Complete control
As the sole owner of your business, you have full control over it. Without any shareholders or directors in the equation, you’re free to make your own decisions and run your business exactly how you want.
5
Financially rewarding
Given there are no other owners of the business to share profits with, everything a sole trader makes after tax and expenses is theirs to keep.
6
Fewer tax responsibilities
Your tax responsibilities are relatively straightforward as a sole trader. There’s no Corporation Tax to pay or annual accounts to submit to Companies House because your business isn’t incorporated. All sole traders need to submit and pay is the Self-Assessment Tax Return annually and, if and when they become VAT-registered, file and pay this quarterly.
7
Less paperwork
You’ll encounter less paperwork when working as a sole trader than you would as a limited company director. Again, this is because your business isn’t a separate legal entity and so there are fewer filing requirements. So no need to file a confirmation statement or maintain statutory registers, which include details of individuals who have an interest in the business.
8
Organisational flexibility
A big advantage of being a sole trader is the flexibility it offers. If, further down the line, you want to go limited, the process is uncomplicated - much simpler than switching from running a limited company to being a sole trader, which involves dissolving your registered business.
9
Total privacy
Whereas a limited company’s annual accounts can be accessed on the Companies House website by anyone, a sole trader’s financial information is kept private. This means your finances aren’t available to the public, which many people prefer.
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
£40
+VAT/mo
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 +
£60
+VAT/mo
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:
How can Caroola help you on your journey?
Whether you decide to become a sole trader or form a limited company, Caroola Accountancy is here to support you every step of the way.
Our experienced team can guide you through the entire process, from setting up your business to managing your finances and ensuring compliance with tax regulations. We offer tailored advice to help you maximize your business potential, providing the expertise and resources you need to succeed.
Let Caroola Accountancy take the hassle out of your business management, so you can focus on what you do best.
Think you might prefer to go limited?
Given many people who decide not to work as sole traders choose to set up a limited company instead, you might find it useful to see how these two business structures measure up against one another in our sole trader vs limited company guide.
As you can see, there are plenty of reasons people work this way - the important thing is that your operating structure is right for you and your business.
Lite
£89
+VAT/mo
Accountancy+
£179
+VAT/mo
Accountancy
£135
+VAT/mo
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