Being a sole trader is a great option for many new businesses. In fact, sole traders made up 56% of small businesses in the UK, with 3.1 million sole traders in 2023.
On the surface, it’s easy to see why there are so many sole traders in the UK. It comes with less paperwork, lower costs and faster progress over other company formation types, such as being a limited company.
To make sure that being a sole trader is the right choice for your business, and to make you aware of all the benefits on offer, we’ve put together this guide to the top advantages of being a sole trader. So sit back and discover the top 11…
Starting A UK Business?
Get rid of the confusion and always know what to do next with Startup Hive, the step-by-step platform created by the Business4Beginners team.
- FREE Step-By-Step Platform
- FREE Bank Account
- FREE Bookkeeping Software
- FREE Email Platform
- FREE Domain Name
- Discounted Company Formation
- Plus Much, Much More!
Join today for 100% FREE access to the entire Plan & Establish phases, taking you from validating your business idea through to setting it up, getting your accounts sorted, and creating a website.
“Excellent guide to build your business”
“The perfect starting point”
“Incredibly simple and intuitive to use”
Startup Hive is your trusted companion as you look to turn all of your business dreams into reality. Join today for free.
—
11 Reasons being a sole trader is great
Being a sole trader is the easiest and fastest way to get your business up and running. By being a sole trader, you are your company. You run the show, you make the decisions, and you make your business work for you.
Let’s dive a little deeper into what this means and what benefits you can expect with 11 of the biggest advantages.
1. Greater control of your business
Being a sole trader means you have ultimate control of your business. You are your own boss, you make your own decisions, and you are responsible for everything that happens.
There’s no need to consult shareholders or directors. You can run your business exactly how you choose.
Of course, you could still operate as a limited company and be the sole director and sole shareholder. This will give you a similar level of control as operating as a sole trader but with a few more regulations to abide by.
2. More flexibility
Because you’re the only one making decisions about your business, it’s also easier to adapt to new changes as a sole trader.
If you want to expand your offering, change prices, or adjust your hours, you can do it instantly. There’s no one else that you have to approve these changes by, making it a great option for those who are fitting a business around a busy lifestyle.
3. It’s easy to get started
Setting up as a sole trader is incredibly simple. All you really need to do is inform the HMRC and register as self-employed.
We’ve listed the steps you need to take later on in this article.
4. Low setup costs
One of the main advantages of being a sole trader is that when you set up, you don’t need to pay any fees to form a company with Companies House.
It’s free to register as a sole trader with the HMRC, meaning you can set up a business for nothing. Being a sole trader means you can also use your own savings or personal loans to fund your business as well, meaning more flexibility with your finances.
5. Low cost accounting
The average accountancy costs for businesses can vary. But as a sole trader, this cost tends to be a lot lower than being a limited company, as your accounting process is much simpler.
That’s because sole traders don’t have to fill out formal Annual Accounts or Corporation Tax Returns. However, you will need to maintain records of your invoices, expenses and submit a personal Self-Assessment Tax Return.
If you hire an accountant, you’ll pay much less than a limited company because there’s less work that needs to be done. It’s also much easier to take care of your accounts yourself, cutting that cost entirely.
EXCLUSIVE OFFERS – Save On Your Accountancy Costs
Need some help with your accounting? Take a look at the best self-employed accounting software that you can use here.
6. Fewer forms and red tape
Not only do sole traders have less accounting to do, but they also have fewer forms to fill out and red tape to cross.
As a sole trader, you don’t have to file a confirmation statement or any of the other myriad of documents that a limited company may need to do so. Most of this is down to the fact that you won’t need to manage shares of your company or appoint directors – as everything is already under your sole control.
You can find out what legal obligations you have as a sole trader here.
7. Access to tax allowances
Sole traders can claim capital allowances on certain expenses, such as the equipment you might need to operate your business. This can include IT equipment such as a computer, tools and machinery, vehicles or even office furniture.
This tax relief can be a helpful advantage to sole traders, but it is worth pointing out that limited companies do receive better tax advantages.
8. The profits are all yours
One of the best advantages of being a sole trader is that you get to keep all the profits that your business makes.
There’s no need to share them with other shareholders or employees, as there are none. It’s just you, and you can reap the reward from all your hard work.
In addition, you might also be able to retain personal ownership of the assets that your business has – giving you extra capital to your name.
Recommended – Top-Rated Online Accountant:
9. More privacy
With limited companies, anyone can inspect their published accounts. It’s part of the public record for all to see.
However, sole traders can be kept private. There’s no need to publicly publish any information, which means your finances are kept much more private. This also helps make sure your competitors have less information about your company, giving you an advantage.
In addition, your personal information will also be kept private.
10. No hiring problems
Sole traders don’t have any employees, which means you don’t have to go through the whole process of hiring and managing employees. It also means you don’t have to negotiate payroll and other expenses that come with having employees.
11. It’s easier to change your mind
If you register as a sole trader and decide it’s not right for you, it’s easy to change to a limited company. If you want to change, all you have to do is go through the process of becoming a limited company.
This is great for people who are testing out a new business, as being a sole trader gives you more flexibility to test the waters. As your company grows, or if you choose to expand and potentially even hire more people, you can register as a limited company later on down the line.
It’s not as easy to change from a limited company into a sole trader. To do this, you would have to go through a formal process of closing your company before you can register to be a sole trader. If you’re unsure, it’s better to start out as a sole trader first.
The disadvantages of being a sole trader
There are many benefits to being a sole trader, but sadly it’s not for everyone. There are downsides and drawbacks that you may encounter, which could mean your business is more suited for an alternative company formation type – like a limited company.
The biggest downsides of being a sole trader are:
- Higher risk: you are your company, which means that all debts that your company creates are your own.
- Harder to grow and expand: sole traders tend to have fewer resources than limited companies, especially if you are relying on your own skills and time. This can make it harder to grow and scale your business.
- There’s no safety net: you don’t get paid a salary as a sole trader, which means that if your business doesn’t make any money, you aren’t making any money.
- Restricted funding: it can be harder for sole traders to access funding methods, and are often reliant on personal loans.
Find out more about these risks and other potential pitfalls that you need to be aware of in our guide to the biggest disadvantages of being a sole trader.
How to set up as a sole trader
Setting up your business as a sole trader is simple and easy.
It involves just three easy steps.
- Tell the HMRC that you’re self-employed. This involves just filling out one simple form.
- Choose your business name. If you want to stop others from trading under this name, you might be able to also register for a trademark.
- Register for Self Assessment for your tax and make sure you file them annually.
That’s it. Pretty simply, huh?
Who is best suited to being a sole trader?
With the above advantages and caveats to being a sole trader, it typically is a company structure that is best suited to:
- Freelancers and consultants that sell their own time and services
- Local service providers, such as plumbers, hairdressers, electricians and photographers
- Small online businesses with manageable product ranges, such as artists or drop shippers
Ultimately, there’s no set-in-stone rule about who should be a sole trader and who shouldn’t. It all depends on your own personal circumstances, the goals and services of your business, and the way that you work.
If you’re a hardworking person, with a good head for risk and willing to front a solo operation – then being a sole trader might be the best thing for your business.
If you prefer having a bigger safety net, want to grow and scale with advanced funding, and create a business that you can leave or sell to others – then using a limited company structure might be a better fit.
And, of course, these things can change over time. If you want to start slow, being a sole trader can be a good way to test the market and figure things out before you take the plunge into a limited company. Whenever you’re ready, you just need to follow our guide to changing from a sole trader to a limited company.
FREE Download:
The Business Success Planner
Set clear goals for your business
Plan and manage your time more effectively
Brainstorm ideas and log inspirations
Stay motivated and encouraged
We’ve got your back, no matter your business
Whether being a sole trader is your perfect match or you settled on a different company structure, the team at Business4Beginners has your company’s back.
Check out our range of helpful guides, ideas, and advice on all things business, including accounting issues, legal matters, breaking news, and how to get noticed online.
Top-Rated Accounting Software:
| Accounting Software | Cheapest Package | Ease Of Use | Our Rating | Review | Official Site |
|---|---|---|---|---|---|
 | £19/mo | Excellent | 9.4 | Read Review | Visit Website |
 | FREE | Outstanding | 9.3 | Read Review | Visit Website |
 | £12/mo | Excellent | 9.3 | Read Review | Visit Website |
