Sole Trader
A sole trader is a self -employed person who owns and runs business as an individual. As a sole trader you are entitled to full control of your business, its assets and its after- tax profit. A sole trader business has not a separate legal identity, therefore, you are personally liable for your all business liabilities and debts.
Most common type of businesses operating as a sole trader are tradesmen providing services to individuals and families such as taxi drivers, painters, plumbers, hairdressers and etc. You might also find other type of small businesses who operate as a sole trader such as small shops. .
Administration and Tax Responsibilities
As a sole trader, you are required to inform and register to HMRC and submit your Self-Assessment Tax Return every year detailing your income and expenses.
You will also need to pay HMRC Class 2 national insurance contributions (NICs) and Class 4 national insurance contributions NICs. The self-assessment regime is full of penalties, and it is important that your returns are correctly completed, they are filed on time and all backup records are kept for a required period. This can be incredibly stressful and daunting to the business owners. Fortunately, at SEARS Accountant we have expert accountants who can help you manage your business tax affairs in the most efficient manner, considering and advising a more tax effective way to conduct your business as well as dealing with all correspondence from HMRC, taking the worry away from you.
Advantages
- As a sole trader you do not require to register with the Companies house and there is no registration cost.
- As a sole trader you have absolute control over your business. You have the freedom of taking decision relating your business.
- As a sole trader you retain all the profit from the business and personal ownership of the assets.
- As a sole trader you have complete operational flexibility so you can make changes to the business to adapt changing circumstances.
- A Sole trader is the simplest and quickest way of sitting up your business.
- As a sole trader your financial information and personal details are kept private with no public access.
Disadvantages
- Sole trader business is not a separate legal entity. Therefore, you are personally liable for all its liabilities and debts.
- As a sole trader your personal assets are at risk when your business is at loss.
- You will have limited access to finance, as bankers may be unwilling to lend large sums to sole traders due to greater risks often involved to sole traders, this will make it exceedingly difficult to raise capital for expanding the business.
- As a sole trader you are subject to income tax for all the profit you earn, and you pay 20-45% tax on your business profit.
- If you are ill or unable to work, your business will suffer financial losses.