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Sole trader

If you require the minimum of formality and legal compliance, being a sole trader may be the way to go. You will not have the benefit of limited liability, but will not need to file accounts or other documents with Companies House.

In the UK, any individual over the age of 18 has in principle the right to carry on a business, subject of course to complying with the general law and to any legislation covering specific activities. There is no law applicable generally to traders unlike for example in civil law systems. As a result, the lack of regulation gives an advantage to being a sole trader. Note however that tax law must be complied with which means filing tax returns.

At the beginning of 2010, almost two thirds (64.2 per cent) of private sector businesses were sole proprietorships, 27.6 per cent were companies and 8.2 per cent were partnerships. Small and medium-sized enterprises (SMEs) together accounted for 99.9 per cent of all enterprises, 59.1 per cent of private sector employment and 48.6 per cent of private sector turnover. (Source: Goverment business statistics

The main disadvantage of sole trader status is the lack of limited liability.

Business name

If you are a sole trader carrying on business under a name other than your surname and forename or initial, you are subject to business name regulations which restrict or forbid certain words. You must also comply with the disclosure requirements i.e. disclosure of your own name and an address at which documents can be served. This information must be clearly shown at your place of business, on business correspondence and on websites. If you want to use a business name, check that it complies with the law and is not too similar to an existing business and likely to cause confusion.
See further: Business and company names

Employed or self-employed?

This discussion of sole trader status assumes that you are self-employed both for tax and employment purposes. Although in theory there should be no difference, in practice a person may be treated as employed for tax purposes at employed but employed for employment law purposes.

Tax: HM Revenue and Customs apply their own indicators to determine whether a worker is employed or self-employed, is not a matter of choice. See: TaxHMRC-employment status

If HMRC consider that a person is employed, they will expect that the employer should treat the worker as an employee and accordingly deduct income tax and national insurance in the normal manner under the PAYE rules.

For more information about starting as a sole trader, go to the Business Link site and the HMRC guidance at HMRC-self employed

How to set up as a sole trader:
  • Choose a business name if not using your own name
  • Register with HMRC as self-employed
  • Consider whether and when you should apply for VAT registration

[Page updated: 11/07/2012]

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