Sole Trader Advantages & Disadvantages

A sole trader is a business structure that refers to a self-employed person who owns and runs their business as an individual.

As a sole trader, you are the business. You have full control over your business, its profits (after tax), and its assets. Moreover, when operating as a sole trader, you're legally responsible for all aspects of decision-making within your business.

This business structure provides self-employed people with simplicity, flexibility, and a number of advantages (and disadvantages!) It's used by many businesses in the UK but is most popular among freelancers and tradesmen who provide services to individuals and companies.

Typically, you'll find writers, designers, plumbers, decorators among the types of self-employed professions. That being said, you can find people from all walks of life working as sole traders.

For an in-depth look at being a sole trader, we recommend you read our What is a sole trader guide.

Offering a service as a sole trader has both advantages and disadvantages. In the next section, we'll help you to understand how these might affect you.

Sole Trader Business Advantages

Here are the main advantages sole traders may benefit from:

• 1. Work for yourself

  Everyone dreams of working for themself one day. Not having to answer to anyone, working on your own schedule, no tedious business meetings to attend! Working for yourself is great! As a self-employed person, you set your own work rules.

  As you work for yourself, you can choose to open and shut up shop when you please. This gives you the freedom to take on and reject new projects based on your schedule. You can also easily implement change without having to consult with shareholders or other people. Essentially, the business is yours to do with as you please.

• 2. Retain all Profits

  Sole traders retain all of their profit. It doesn't have to be shared among shareholders or left within the business. Most sole traders choose to work alone, which allows them to keep costs to a minimum and maximize profits. In addition to profit retention, a sole trader may also retain personal ownership of business assets.

• 3. Easy to set up

  Sure, setting up limited companies isn't as difficult as it once how. However, setting up as a sole trader is the more efficient business structure to set up.

  You won't need to register your company with Companies House or go through the hassle of collecting the documents required to do so. Instead, you'll just need to inform HMRC that you're self-employed and operating your business as a sole trader.

• 4. Low barrier to entry and costs

  Although it's simple enough to start and register a company independently, most people opt for a limited company formation agent to take care of everything for them. Legal details, documents, and bureaucracy can get complicated; sometimes it's easier to leave it to the professionals!

  Of course, the agent isn't going to do it for free, so this can add to the costs involved in starting your small business. As a sole trader, there are no fees to pay to Companies House, and you're much less likely to need much capital getting started.

• 5. Maximum privacy

  Limited companies are published on the Companies House website. Their published accounts aren't kept private. One of the main advantages of being a sole trader is that your accounting and personal details kept private, so you can enjoy maximum privacy.

• 6. Full control of the business structure

  As a sole trader, you're your own boss. You retain full control over your business, how you operate it, and any change you decide to implement. There's no need to consult with directors or shareholders, so you can develop your business in the way you see fit.