In this article, we’re answering “What is a sole trader?” This will focus primarily on the United Kingdom, including discussions about how to register.
This article is part of our free series on banking in the UK and opening a UK bank account without proof of address, which you can access by clicking here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is a Sole Trader?
- What Is the Difference Between Sole Trader and Self-Employed?
- How to Register My Company As a Sole Trader?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is a Sole Trader?
A sole trader refers to an individual who chooses to operate their business personally instead of through a formal corporate structure. That said, there are many disadvantages, including unlimited liability, limited scalability, and lack of professionalism.
On the other hand, the advantages include ease of starting, low beginning costs, general flexibility, and simplified taxes. In other words, taxation is easier to navigate and income is the property of the individual.
What Is an Example of a Sole Trader?
Examples of sole traders include tradespeople and freelancers. That said, it’s important to note that certain individuals in both of these groups may be better suited to a formal corporate structure, this is especially true when there is significant liability involved with the work being performed.
Do You Want Our Free Non-Resident Banking Guide?
Sign up here to receive our Free Non-Resident Banking Starter Guide and weekly updates on the best account opening options available:
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 someone who works for themselves and does not have a corporate structure, while self-employed can include both but it can also include a wide range of other business owners. In other words, it is a specific type of self-employed person while self-employed refers to a broader category of work.
If I Own My Own Company, Does That Mean I Am a Sole Trader?
No, if you own your company and it is set up as a formal corporation you are not a sole trader. Instead, you might be self-employed. That’s because a trader specifically refers to an individual who has registered for Self-Assessment and operates their business directly without a formal corporate entity.
How to Register My Company As a Sole Trader?
To register your company as a sole trader, you will first need to inform HM Revenue & Customs (HMRC) by registering for Self-Assessment. Not surprisingly, after registering for self-assessment, you will need to submit a Self-Assessment tax return each year.
In addition to registering, individuals registering for Self-Assessment also need to maintain ongoing records for the business, and expenses, and apply for a VAT number after they have reached at least GBP 85,000 in annual turnover.
Importantly, after you have registered your company, you need to open a business bank account. This will allow you to maintain clear records and separate your personal and business finances. Depending on your deposit activity, how long a cheque takes to clear ultimately varies on the amount being deposited.
Frequently Asked Questions
Below are four of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Are the Advantages of Being a Sole Trader?
The main advantages of being a sole trader include simplicity and ease of getting started, control over all aspects of the business, and flexibility in terms of how the business will be managed and grown.
How to Become a Sole Trader?
To become a sole trader in the United Kingdom you will need to register with the HMRC for Self-Assessment. To apply for self-assessment, you will need to create an account with the HMRC through HMRC online services.
What Defines a Sole Trader?
A sole trader is defined through ownership, structure, liability exposure, decision-making, and taxes. In short, it refers to a business owned by a single individual, without a formal corporate structure, and with unlimited liability exposure. As a result, doing business in this way is not suitable for industries with a high degree of liability.
What Are the Pros and Cons of a Sole Trader?
The pros and cons of a sole trader include pros like ease of starting, low cost set up, and simplified taxation, and cons of unlimited liability, lack of professionalism, and lack of scalability.
Do You Want Help Opening Bank Accounts?
If so, you can access GlobalBanks Insider and start the process of applying for an offshore account in a few clicks.
GlobalBanks Insider is a dedicated account opening solution that involves direct support from our team and direct introductions to the banks of your choosing. It gives you instant access to the…
+ Direct support from a team of banking experts
+ Direct introductions to your desired banks
+ Answers to your most pressing questions and challenges
+ Expert insights on which banks to choose & why
+ Plus FULL access to our entire suite of account opening tools and intelligence!
And “yes!” GlobalBanks Insider is designed to help foreign and non-resident individuals and companies open bank accounts.
You can learn more on the products page from the main menu above.
