Business legal structure - sole trader

Author: Jim Riley Last updated: Sunday 23 September, 2012

Sole traders

Most businesses in the UK are small businesses, owned and operated by one person. In most cases, these businesses operate as a “sole trader”.

Look through the Yellow Pages or a local free business listing posted through your letterbox and you will see lots of examples of people operating as a sole trader in your area. Many traders in the service sector (e.g. hairdressers, gardeners, plumbers and electricians) use the sole trader option, as do people who run part-time or seasonal businesses.

Why is the sole trader such a popular form of business organisation? The key reason – it is simple and cheap to set up and operate in this way.

Being a sole trader is the simplest way to run a business: it does not involve paying any company registration fees; keeping records and accounts are straightforward, and the sole trader gets to keep all the profits.

The sole trader simply registers as being “self-employed” with the UK tax authorities.

The profits earned by a sole trader are included in the personal income of the business owner when it comes to calculating and paying income tax and national insurance. Depending on the value of sales achieved, the sole trader may also have to account for VAT.

Don’t forget that a sole traders can and do employ other people to work in the business – but most don’t.

	Advantages	Disadvantages
Sole trader	Quick & easy to set up – the business can always be transferred to a limited company once launched Simple to run – owner has complete control over decision-making Minimal paperwork	Full personal liability – “unlimited liability” Harder to raise finance – sole traders often have limited funds of their own and security against which to raise loans The business is the owner – the business suffers if the owner becomes ill, loses interest etc Pay more tax than a company