This section outlines what a sole trader is, the key features of running a business as a sole trader, the restrictions on choice of business name as well as the records a sole trader needs to keep.
One of the key aspects of being a sole trader is that you are self-employed and therefore you must register with HMRC for self-assessment as soon as possible after starting a business. Sole traders can keep all the profits from their business but only after all the appropriate tax has been paid.
You will therefore be responsible for keeping records of your business’ sales and expenses and sending a Self-Assessment tax return to HMRC every year. This includes paying income tax on the profits your business makes and national insurance as well as registering for VAT if your turnover reaches the VAT threshold.
Being a sole trader business involves some personal financial risk as a sole trader will be personally liable for the debts of their business without limit.This has to be balanced against the incentive of owning and growing a business with very little legal formality where you have full control over your business. Many businesses start out life as successful sole trading entities and only consider converting to another form of corporate vehicle when they reach a certain size, both physically and financially, where it becomes more beneficial to operate, for example, as a limited company.