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What is a Sole Trader?

A sole trader is a self-employed person who owns and runs their own business as an individual. A sole trader business doesn’t have any legal identity separate to its owner, leading many to say that as a sole trader you are the business.

What are sole traders legally responsible for?

Tax Responsibilities

As a sole trader, the income from your business is counted alongside your personal income. This means that, whether or not you’ve had to do so before, you’ll now need to complete a self assessment tax return every year detailing your income and expenses. You’ll also need to pay to HMRC:

  • Income tax based on your taxable income
  • Class 2 national insurance contributions
  • Class 4 national insurance contributions

Benefits of trading as a sole trader

Profit Retention

As a sole trader you retain all the profits from the business, rather than having to share them with other shareholders (or leave profits in the business). Many sole traders choose not to employ anyone, which can keep costs low and maximise profits available to them.

Control

You are ‘your own boss’ so there is no need to consult other directors or shareholders which leaves you to develop it exactly as you choose.

Fewer statutory Obligations

There is no requirement to register the business with Companies House or make ongoing filings of information with them.

When is this not suitable for you?

A sole trader structure is not for you if you are working on or in your business as a team, or there are multiple partners like in a general partnership, so the sole trader model is not usually suitable if you’re looking to go into business with someone else, sharing the responsibility and rewards.

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Get Registered

How we can help you

Registering as a Sole trader

If you start working for yourself on a self-employed basis as a sole trader, you must register with HM Revenue and Customs (HMRC), which can be done online. This is something that we can assist you with. While it’s not possible to register in advance, you must inform HMRC promptly after you start trading. That will include registering for self assessment, if you haven’t had reason to do so before.

Tax Returns

How we can help you

Meeting Self Assessment Tax Return Deadlines

Any tax you owe must be paid by 31 January following the end of the tax year to which it relates. You may also need to make twice yearly ‘payments on account’, which are effectively advance payments for the current tax year.

Vat

How we can help you

VAT Registration

If you're registered for VAT, you'll need to complete regular VAT Returns and make VAT payments to HMRC.

Payroll

How we can help you

Payroll

If you employ people as part of our sole trader business, you must collect the right amount of income tax and national insurance contributions from their pay and regularly pay these to HMRC. that means you'll also need to operate a Pay As You Earn (PAYE) payroll scheme.

Learn the basics

News & Helpguides

For the eager-to-learn business owners, we have a bank of helpful learning guides and information in our resource centre for you to add to your toolkit.

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