7 Advantages of Being a Sole Trader

7 Characteristics For Defining Sole Traders

Sole traders have sole ownership and full control over all aspects of their business—from how day-to-day operations are carried out to the long-term goals and strategic direction of the company. 

Unlike with other business structures, you won’t have to consult shareholders, directors or partners. You’re able to make decisions on your own, act on them swiftly and remain adaptable and responsive to the needs of your customers and changes in the business landscape.

Setting up as a sole trader is a breeze. All you need to do is to notify HMRC that you’re self-employed (this is done via registering for Self Assessment online), and choose a business name. 

You’ll be able to start trading right away, unless you’re running a type of business that requires a licence to operate legally. If you aren’t sure about which licences you may need, you can find out using HMRC’s licence finder tool.

As a sole trader, you don’t have to be registered at Companies House, and as such do not have to pay additional fees (registering as self-employed with HMRC is free).

There’s little need to engage the services of a company formation agent or solicitor while setting up either, so there are minimal fees involved.

Advantage 4: Accounting fees are lower, too

Sole traders have fewer reporting requirements and deadlines. There's less accounting work involved, which translates into lower accounting fees.

If you’re running a limited company, your accounts, along with specific details about the company’s directors are made publicly accessible through the Companies House website. 

This isn’t the case for sole traders because, unlike limited companies, traders and those offering a personal service are protected by HMRC’s taxpayer confidentiality rules. Your financial and personal information, as well as your personal assets, business assets, and business information, are all kept private.

In addition to having greater privacy, this also provides a competitive advantage for sole traders, as it makes it more challenging for competitors to gather information about your business - something quite easy to do if you are a limited company.

As an independent trader, you don’t have partners or shareholders to pay or share profits with, and as such enjoy sole control of the business profits. This legal distinction makes all the profits yours, even when you raise capital for your business. Naturally, this also means that, as someone in a self-employment scheme, you are personally liable for your business debts.

As a limited company director, you’re required to file a confirmation statement, corporation tax return, annual accounts and other event-based filings to Companies House.

However, you’ll be able to do away with these when you operate as a sole trader business—which means there’s considerably less paperwork involved and fewer administrative tasks to deal with.

Of course, you will still need to pay income tax in the same way limited companies and you will need to make sure you have public liability insurance.

It’s much easier to start out as a sole trader, than to form a limited company from day one. That’s because as a limited company director, you’d have to undergo the process of dissolving your company and stepping down as a director should you decide to change your business structure.

The process of converting your trader business to a limited company is comparatively simpler. By submitting an online application to the Government agency, you can get approved in as soon as three working days.

if you need more information about opening a limited company, most of it is available in our article on registering a limited company, where we share step-by-step instructions for setting up and completing the company formation process. You can also use the links below to learn more about your self-assessment tax return, opening a business bank account, and explore the advantages and disadvantages of being a sole trade business.