In this article, we’re discussing what defines a sole trader, meaning someone that is self employed and does not operate through a legal entity.
This will include a clear breakdown of the meaning of sole trader, how it compares to other business structures, the tax requirements sole traders need to meet and more.
We will also be answering common questions we receive from our members on this topic below.
This article is part of our free series on banking in Europe, which includes a step-by-step guide on how to open a European business bank account online, which you can access using this link.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Sole Trader Meaning
- Sole Trader Tax Requirements
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
Sole Trader Meaning
Sole trader, meaning a person that has not incorporated a legal entity to carry out their business activities, is also considered self-employed. These individuals are the owners and operators of their businesses and are also legally responsible for any liabilities and legal issues that may arise.
Am I a Sole Trader If I Have My Own Company?
No, you are not a sole trader if you have your own company that has been incorporated with an official business registry. Instead, you would be considered a self-employed individual. The distinguishing factor is that a sole trader has actively decided not to incorporate an entity to carry out business activities.
Sole Trader Tax Requirements
Sole traders have tax requirements in the United Kingdom that are different from other forms of business. These requirements are important to consider when starting your business. If you fail to meet specific requirements, penalties, and fines can be applied by the HMRC.
Here is a look at the specific tax requirements for a sole trader in the UK:
- Register for self-assessment
- Register for Value Added Tax
- Maintain accurate financial records
- Correctly report and pay income tax
- Pay National Insurance as a self-employed person
- Complete all relevant tax obligations on time
As always, if you are trying to navigate tax requirements, you should speak with a qualified tax professional to confirm the best path forward based on your situation.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into the meaning of sole trader. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is the Meaning of a Sole Trader?
The meaning of a sole trader is an individual that works for themself with a legal entity. In other words, they own and operate their own business without incorporating a separate entity for the purpose of carrying out the business activities. While this may be faster and more cost-effective in the short term, it also means that the individual is liable personally for any damages or debts in the future.
What Is the Difference Between Sole Trader and Self-Employed?
The main difference between sole trader and self-employed is that sole trader refers to an individual that works for themself without a legal entity while a self-employed person is someone that works for themself and may or may not have a legal entity in place. In other words, a sole trader is considered self-employed, but a self-employed person is not necessarily a sole trader.
What Are 3 Advantages of a Sole Trader?
Three advantages to operating as a sole trader include costs, control, and tax benefits. In terms of costs, there are essentially no set-up costs to starting a business this way because there is no company and no separate bank accounts. As for control, sole traders do not share decision-making power with any other person by virtue of working alone and for themselves. Lastly, sole traders can also capture certain tax benefits. However, it’s important to point out that there are also liabilities to consider.
What Is a Sole Trader Example?
An example of a sole trader is an individual that owns and operates a business on their own. This can include a wide range of different professions, including writers, designers, local plumbers, and much more. One important differentiating factor is that sole traders are liable for any debts or legal issues that may arise during the course of carrying out their business activities.
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