We'll go through the key 7 advantages you need to know if you're thinking of becoming a sole trader.
Advantage 1: Full control and greater flexibility
You have sole ownership and full control over all aspects of your business—from how day-to-day operations are carried out to the long-term goals and strategic direction of your 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.
Advantage 2: Ease of setting up
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.
Advantage 3: Low set up costs
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: Lower accounting fees
Sole traders have fewer reporting requirements and deadlines. There's less accounting work involved, which translates into lower accounting fees.
Advantage 5: Greater privacy
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, as they are protected by HMRC’s taxpayer confidentiality rules. Your financial and personal information are kept private.
In addition to having greater privacy, this also provides a competitive advantage, as it makes it more challenging for competitors to gather information about your business.
Advantage 6: Ownership of profit
As a sole trader, you don’t have partners or shareholders to pay or share profits with, and as such enjoy sole control of the business profits.
Advantage 7: Fewer statutory requirements
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.
You’ll be able to do away with these when you operate as a sole trader—which means there’s considerably less paperwork and administrative tasks to deal with.
Advantage 8: It’s easier to change your business structure down the road
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 sole trader business to a limited company is comparatively simpler. By submitting an online application to Companies House, you can get approved in as soon as three working days.
Further information 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.