What is a Sole Trader: Meaning & Definition

Chris Andreou

December 31, 2020

Free Download: Self Employed Registration Guide

Download Now ↓
Self Employed

What is the definition of a sole trader?

A sole trader is a self-employed person who is also the exclusive owner of a business. The individual is entitled to all profits of your business after tax has been paid, and liable for all losses.


While sole traders are often thought of as a one-man business organisation, it’s important to keep in mind that the term ‘sole trader’ refers to the business structure—not the number of employees. While a sole trader trades alone and is self-employed, it doesn’t mean that he or she performs the day-to-day operations alone without hiring employees.

What are the characteristics of a sole trader?

Full control

As a sole trader, you have sole ownership and full control over your business. You don’t need to consult with directors or shareholders before making a decision, and are fully in-charge of a wide range of business decisions—from how your operations are run, to how you want to grow your business or use your profits.

Not a separate legal entity

As a sole trader, you and your business are considered one and the same. There isn’t a separate legal identity, which means that you’ll be responsible for all the transactions and activities your company is involved in.

Continuity

This relates to the point above. As there isn’t a legal distinction between the owner and business, a sole tradership is dependent on its owner. The company will cease to exist depending on the owner’s personal circumstances, such as death, retirement, bankruptcy or imprisonment.

Unlimited liability

Sole traders assume full legal responsibility for all business debts. There isn’t a limit to the maximum amount of debt a sole trader is personally liable for, and as such, your personal assets may be seized to pay for losses incurred by the business.

Taxed as an individual

You pay income tax—not corporation tax—on taxable business profits, and are also required to pay Class 2 and Class 4 National Insurance contributions. You’ll also need to register for VAT if your business turnover exceeds the current VAT threshold of £85,000 (for a 12-month period ending in 2020/21).

Minimal admin and filing requirements

There’s little paperwork involved with operating as a sole trader.

Apart from your annual Self Assessment tax return, sole traders aren’t required to file accounts or other documents with Companies House. Do note that you still need to keep a record of business expenses and income to fill in your tax returns.

Privacy

As a sole trader, you enjoy a greater level of privacy as you’re protected by HMRC’s taxpayer confidentiality rules. Unlike limited company directors, you’re not required to publish your company’s accounts or details on the Companies House website.

Self Employed Registration Guide

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Self Employed Registration Guide

What are examples of sole traders?

  • Freelance writers
  • Virtual assistants
  • Business consultants
  • Plumbers
  • Photographers
  • Hairdressers
  • Financial planners

Self Employed Registration Guide

What's Inside:

  • What is a Sole Trader?
  • Sole trader advantages
  • Sole trader disadvantages
  • How to register self employed
  • Sole trader responsibilities
  • Self employed tax
  • Important self employed deadlines
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Self Employed Registration Guide

What's Inside:

  • What is a Sole Trader?
  • Sole trader advantages
  • Sole trader disadvantages
  • How to register self employed
  • Sole trader responsibilities
  • Self employed tax
  • Important self employed deadlines

Get Free Advice from an Accountant

Book a free 30 minute call with an accountant. We'll help walk through setting up your business, switching accountant or any of your tax queries. All our accounting packages come with a free 30 day trial.

Read More Guides below:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I register as a Sole Trader? Guide

How do I register as a Sole Trader?

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What is a sole trader? Guide

What is a sole trader?

If you're planning to start out on your own, one of the most important decisions you'll need to make is figuring out how you should structure your business.

As a freelancer, contractor or small business owner, there are three main types of legal structures you should consider:

  • Sole proprietorship
  • Limited company
  • Working through an umbrella company

It's a decision that requires careful consideration, and it's important that you seek advice from qualified professionals when you weigh out the pros and cons of each business structure. To begin with, you need to have a good grasp of the basics-and here's where our guide comes into the picture.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Self employed tax obligations guide Guide

Self employed tax obligations guide

When you're self-employed, you have unique financial obligations-especially when it comes to paying your taxes.

When you work for a larger corporation, or even a relatively small business, your company takes on a large percentage of handling your tax responsibilities for you.

As a freelancer or small business owner, you're on your own. You work as an independent contractor for each of the clients you work for-and they don't take taxes out of your check before they send it to you.

How then should you handle the responsibility of paying your taxes?

This guide will help you get started:

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
7 Advantages of Being a Sole Trader Guide

7 Advantages of Being a Sole Trader

7 Advantages of Being a Sole Trader

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What is a Sole Trader: Meaning & Definition Guide

What is a Sole Trader: Meaning & Definition

7 Characteristics For Defining Sole Traders

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How to register self employed with HMRC Guide

How to register self employed with HMRC

From starting your side business to going freelance full-time, becoming self-employed can feel scary and exciting all at once.

Before you jump right in, you need to ensure that you're staying on the right side of the law- and this begins with registering as self-employed with HMRC.

In doing so, you can be sure that you're paying the right amount of income tax and National Insurance Contributions, and thereby avoid paying unnecessary financial penalties.

Ready to get started? We've got all the information you need below:

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Self Employed Registration Guide Guide

Self Employed Registration Guide

  • What is a Sole Trader?
  • Sole trader advantages
  • Sole trader disadvantages
  • How to register self employed
  • Sole trader responsibilities
  • Self employed tax
  • Important self employed deadlines
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Self Employed Registration Guide