Sole Trader (Self Employed)

Sole Traders Setup

It is relatively easy to set up and start as a sole proprietor. Additionally, the process involves minimal bureaucracy and can be completed quickly. You complete a form and notify HM Revenue and Customs that you are operating as a sole trader (form CWF1).

HM Revenue and Customs will issue you with a 10-digit Unique Taxpayer Reference (UTR) number. You will then be required to prepare and submit a Self Assessment tax return every year that you operate as a sole trader.

You will also be personally responsible for any debts or losses that your business incurs. It is important to have a solid business plan and good financial management skills to succeed as a sole trader.

Furthermore, learn about some of the advantages and disadvantages of operating as a sole trader.

Advantages:

• Simple – it is the easiest business structure to set up.

• Control – you are in total control of the business.

• Switching – should you decide to switch to a limited company, it is a simple process.

• Confidential – you don’t need to submit your accounts anywhere.

Disadvantages:

• Unlimited Liability – if the business gets into financial difficulties, you will be personally liable for all business debts.

• Raising Finance – unincorporated businesses (another name for a sole trader) can find it difficult to raise finance from banks.

• Tax – sole traders have an additional tax liability of Class 4 NIC, which is assessed on business profits.

• Economies of Scale – sole traders can also find it difficult to benefit from economies of scale that larger businesses benefit from, such as discounts for bulk buying, additional finance, and additional resources.