Becoming a Sole Trader
Sole trader is basically you trading as your business. For example Fiona's Flowers, or Greg's Hairdressers, or Paul Power Landscapes. It is the most popular choice of trading identity for those offering either a service or a small retail concession.
Some important advantages to trading as a sole trader
- Easy to set up without any costs . You simply trade as you are, eg Paul Power trading as Paul Power Landscapes.
- Complete control over your business . You are your business, which means you can retain complete control over all your business-making decisions without having to consult other directors, partners etc.
- Easy to change to another trading identity . It's far easier to change your trading identity from that of sole trader to a limited company. I Going the other way, ie, limited company to sole trader, can be very, expensive and bureaucratic.
- Accounting . Your trading accounts do not have to include a balance sheet such as you would have to provide for a company.
Some disadvantages
- You are personally liable for all your businesses debts . This liability is unlimited and should your business fail you could end up losing your personal assets such as your home, car, furniture etc.
- Credibility . While some businesses are suited to that of sole trader and customers like the idea of doing business with a person as opposed to a company, others do not. The travel business is one business where people need to be convinced that when they are paying their deposit and final holiday payments their money is being paid to a company and not an individual.
A sole trader is an ideal starting point for your business if you're simply selling something at craft fairs, exhibitions, through your own website, etc. It is also suitable for offering services, for example wedding planner, personal organiser, florist etc.
Remember that the main advantage to being a sole trader is that you can easily change to another trading identity as your business grows. My first business was Paul Power trading as Paul Power Landscapes - a sole trader - but this business is now run as a partnership.
Another advantage to you as either a sole trader or partnership is that in the event you make a loss you can deduct your losses from future profits, provided these profits are made from the same business. You can also deduct losses from other income you have gained either in the year you sustained the loss, or the previous year, including any personal income you might have.
How to set yourself up as a sole trader
Setting yourself up as sole trader is relatively straightforward.
Request the form that you need to complete to register as self-employed. You should do this as soon as you start. If you fail to do this within the first three months of becoming self-employed you risk a fine of £100.
The Inland Revenue also publishes a free Starting Up In Business guide, which is full of useful information regarding taxation and national insurance, employing people etc.
Contact the Inland Revenue either by phone (08459 15 45 15. Open Monday to Friday Sam to 8pm and Sam to 4pm on Saturday and Sunday) or online at www.inlandrevenue.gov.uk/startingup/. You can register and download copies of their guides.
