What Is a Sole Trader? | UK Banking Basics

In this article, we’re answering β€œWhat 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 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

  1. What Is a Sole Trader?
  2. What Is the Difference Between Sole Trader and Self-Employed?
  3. How to Register My Company As a Sole Trader?
  4. Frequently Asked Questions
  5. Do You Want Help Opening Bank Accounts?

What Is a Sole Trader?

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.Β 

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 a sole trader 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.

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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 that 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 trader specifically refers to an individual that 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, 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.

Frequently Asked Questions

Below are a few 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, 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. In order 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 to 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, lack of scalability.

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GlobalBanks Team
GlobalBanks Team

The GlobalBanks editorial team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs. All have in-depth knowledge and experience in various aspects of international banking. In particular, they have expertise in banking for foreigners, non-residents, and both foreign and offshore companies.

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