EvoTax services for sole traders
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Who is a sole trader? What are the advantages of being a sole trader? Should you become one? Let us help you make the right decision.
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Is becoming a sole trader the right choice for your business?

Who is a sole trader?

A sole trader is an individual who runs and owns his own business and is therefore classed as self-employed. Unlike limited companies, sole traders are not separate from their business and therefore the individual is the business.


Who can be a sole trader

Any individual can register as self-employed. However, even though there is no set age defined, it is usually better to wait until 18 to avoid any unnecessary challenges, such as opening up a business account, getting credit, applying for business finance, etc.

Although there aren’t any restrictions for anyone to register a sole trader, if an individual has recently declared bankruptcy, you will have to get permission from the court inorder to start your sole trader business.

If you were not running a business prior to declaring bankruptcy, you may be required to pay a certain amount of income back to the lenders if your new business becomes successful.


Why should you be a sole trader?

If you are looking to start a business, self-employment is the most popular business structure in the UK. Sole traders amount to 60% of the total small business registered in 2020.

Due to the ease of setting up a sole trader, most will flock to register themselves as self-employed. Before one takes the step into the realm of self-employment, pros and cons should be taken into consideration.

The advantages of becoming a sole trader are as follows:

  • The most important aspect of anyone wanting to leave employment is that they want to be their own boss. This helps ensure you dictate your future, your timings, and the way you want to structure and manage your business.
  • You are in charge of your tax affairs. Therefore, any business-related expense as discussed above can be claimed for, allowing you to dictate how much tax you will pay at the end of the year.
  • As a self-employed business, you will keep all the profits net of tax, compared to being in a partnership where you will split your profits or in an ltd company where you might have other shareholders.
  • There is no expense involved in setting up as self-employed and therefore can be started with very little funding.
  • There aren’t any requirements to submit your accounts to Companies House, so as long as you are organised, you won’t need much help with your accounting work other than the preparation and submission of self-assessment tax returns.
  • If your business does start to evolve and you start making enough money, it would be tax-efficient to register as a limited company, which is a straightforward procedure.



There are certain disadvantages that would be wise to know before you plunge into setting yourself up as a sole trader.

  • The most prevalent of all is that a sole trader takes on the full brunt if anything goes pear-shaped. Unlike in limited companies, where business owners can take shelter off the limited liability business structure; sole traders are open to it all and put themselves to quite a bit of financial risk.
  • Sole trader business structure is not as tax efficient as a limited company. While a limited company owner can work around their taxes and maximise their income, a sole trader only gets a personal allowance of £12500 and then, the entirety of the profits is subject to tax.
  • A sole trader is generally a one-man band, and therefore taking any breaks can be difficult. Working around the clock is not efficient, and therefore organising your time is extremely important to have a work-life balance.
  • Being the sole decision-maker can sometimes become daunting and lonely at times. In addition, being the sole captain of the ship can bring on quite a bit of pressure, as the direction you take will eventurally be the outcome of your business.
  • Sole traders are not given the same status symbol as a limited company and therefore can lose clients in the process.
  • Most sole traders find it extremely difficult to secure funding, as there are no set accounting standards by which a lender can assess your financial credibility.


Taxation as a sole trader

As sole traders are registered as self-employed, they have full control over their tax and accounting affairs. They are not required to disclose their accounts and therefore do not have set accounting rules governing them. Due to this, there is no requirement for a sole trader to keep a set of accounts. They can, however, follow the accounting standards if they desire, although there is no requirement to follow such regulations.

It would be prudent, however, for a sole trader to keep a separate business account, follow tax procedures, if employing staff; making sure they are registered with HMRC under the PAYE scheme, and most importantly, be aware of the tax key dates.

At the end of the tax year, which runs from the 6th of April to the 5th of April,  all the profits declared will be subject to income tax and national insurance.

Profits are simply revenue (Sales) earned minus expenses. Even though there aren’t many regulations regarding the accounting treatment, there are however, when it comes to tax. The sole trader needs to be aware of a list of allowable and disallowable expenses.


Some examples of allowable expenses would be:

–           Utility bills for your business

–           Travel & accommodation

–           Staff wages


Some examples of disallowable expenses would be:

–           Initial cost of building

–           If working from home, only a proportion will be allowed, the rest disallowed

–           Travel between home and work.



If this article has intrigued you about how to become a sole trader, do not hesitate to contact us for your free, no-obligation consultation.

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About the Author

Bilal Khalid

CEO, Accountant

Bilal Khalid EvoTax accountant

Successfully running my own small business for years has taught me a great deal about the complexities of taxation and I understand all the pain points that every entrepreneur has to go through. I often found myself paralysed with fear of making a mistake and getting fined and eventually decided to take up accounting and finances myself. Today, I help other small businesses suffering through similar mistakes and I am happy to share my knowledge, jargon free!

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