Why Become a Sole Trader?April 08 2016, 1 Comment
A person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses.
It was recorded in 2015 that there was a record-breaking figure of 5.4 million people who were operating in the private businesses sector in the UK. The sum, reported by the Department for Business, Innovation and Skills (BIS), stated that of these businesses, 3.3 million (62%) were sole traders, 1.6 million (30%) were companies and 436,000 (8%) were partnerships.
As you can see out of all the possible options, sole traders dominate the UK businesses market. The above statistics, despite only being an educated guess, – due to there being no central register for sole traders – shows just how popular this business route is for the entrepreneurs of the country. But why is this?
Below we have listed some of the top advantages to going it alone. Becoming a sole trader could be the best choice you make.
Setting up as a sole trader couldn’t be any simpler, which is way so many people do it. The government are even quoted in saying that its ‘the easiest way to start a business in the UK’.
There are three straight forward steps you need to follow:
- Register yourself for Self Assessment as a sole trader with HMRC.
- Pick a business name if you don’t want to trader under your own.
- Inform the HMRC that you’re going to be self-employed.
The only other requirement to meet is to get a hold of any specific licences you may need that would effect your chosen field. Once all of that is in order, you are good to begin your trading.
If you’re somebody who doesn’t enjoy admin duties or generally struggles with these tasks, then a sole trader is a great option for you. Unlike a company, there are a reduced amount of documents that you have to complete (share, director applications) as they are irrelevant to a sole trader. With that in mind, you spend less time filling through paperwork and more time focusing on what you love and want to earn a living from.
When starting up, you won’t need to hire the services of a solicitor so unless you’re looking to employ an accountant from the moment you commence, there are no large, upfront professional fees to pay that will put you immediately out of pocket.
The thing that people most love about being a sole trader is the freedom they get. They are in complete control of what they do, don’t do and the future of their whole setup. With no one to answer to, you are your own boss and can make the decision on what you think is best every time. You can dictate, who you work with, how much you charge and what you offer. You can even offer tailor-made packages to appeal to customers that could help you seal deals above your competitors.
What is also attractive is that it gives you flexibility. With competition for employment in the UK being at its all time high, securing a job is a tricky task. This has led many people to turn to becoming a sole trader in order to make money for themselves. By becoming a sole trader, if you later have a change of heart or enter employment, there is a lot less you need to do in terms of shutting your operation down. As a limited company, you’d have to go through several longwinded processes to close down, which often can incur large cost especially with accountancy fees.
As a sole trader you must keep up to date, accurate records of your sales and expenses. If you invest in some home accounting software, it does the hard work for you, all you need to do is implement your costings. You’ll need to complete and file an annual self assessment tax return with HMRC, but unlike when you run a company, there is no need to file the end of year accounts. Meaning again, less of the things you don’t like and more of the things you do.
With limited companies, their accounts and certain details regarding directors are all made available for public inspection through Companies House. As a sole trader, your privacy is protected by HMRC’s taxpayer confidentiality rules.
When you are harder to find, it means your rivals have less information about you so they’ll struggle to analyze and compete with your business.
Choosing to becoming a sole trader could be the smartest move you make. When picking the right business structure that works best for you, it will involve an in depth examination of your future plans. If they align and fit for your services, then there are undoubtedly a whole host of advantages for you when choosing this route over that of a limited company.