Things you should know about being a Sole Trader

/ Accounting, AIMS, AIMS News, SME, Tax

Author: Henry Ejdelbaum

Tags: Quarterly Update August 2021, Sole Traders

We know it’s a popular choice for the SME sector, in fact 76% of businesses are set up as self-employed/sole traders.

But what does it mean for you and your business for a tax perspective? You may even have seen another article that we did recently about the different structure for a business that you can think about.

A few key points to remind and consider:

  • Sole traders are the only owners of their businesses.
  • Fines for not registering or registering late as sole trader can be severe, especially, and perhaps ironically, if you aren’t actually due to pay any tax.
  • Being a sole trader means you are your own business, and there is no separate legal entity so you are responsible for debts. Depending on your situation this can often be the main reason why people choose to move to a limited company.
  • Administrative costs are usually cheaper, and even registering as one costs nothing. Costs and liabilities may also be lower as opposed if you set up a limited company.
  • Sole traders can become limited companies. If everything is going well with your business and there is substantial growth, you can always set up a limited company to allow further business expansion.
  • Sole traders must keep detailed financial records and some have to register for VAT (If turnover exceeds £85,000 p/a)
  • Self-employed or sole traders’ tax is simpler to understand and many have to wear different hats (the sales, marketing and accounting hats!)

Sole traders need to be, to a certain extent, masters of many trades. You need to not only be good at what your do (your underlying skill or what your business is selling, but also selling yourself – otherwise you won’t have any customers). For so many sole traders we see these things being prioritised, and sometimes the admin and internal accounting coming last, our top takeaway would be trying not to let this happen. If you don’t have the time or the inclination to get your head around keeping your internal records straight, find someone to help you!