Tag Archives: Sole Trader

Majority of UK Businesses are Sole Traders

When starting a new business many people choose to create a limited company. There are many reasons for doing this. Forming a limited company offers some protection for your business name and a lot of suppliers and potential customers prefer it. Being registered means you have to file your accounts every year with Companies House showing that the company’s level of debt and that it is not insolvent. This gives them some basic guarantee that the company will be able to pay its debts.

Record numbers of limited companies have been formed in the last year. According to the latest figures from Companies House around 426,500 companies were created in 2011/12. (However 267,200 companies also closed down in this period). Depending on whose figures you believe there are somewhere between 1.3 million and 2.6 million companies in the UK. The Department for Business and Office for National Statistics (ONS) use the lower figure while Companies House, who keep the register of limited companies, use the higher figure. Either way companies do not make up all of the 4.8 million businesses that the government thinks there are in the UK.

In fact the Department for Business and ONS say that limited companies only make up 28% of businesses in the UK. A further 9% are partnerships but the vast majority, 62.7% of UK businesses, are sole traders. It is quite hard to establish the exact number of Sole Traders as there is no central register for them. The only requirement for being a Sole Trader business is that you tell HMRC that you are self employed and HMRC do not publish the figures for the number of people who have done this. To complicate matters further being registered as self employed covers a wide range of scenarios. Someone registered as self employed could be working freelance or as a consultant. They may have a full time job and be doing some extra work in their spare time or they may be running multiple businesses. The number of sole trader businesses is therefore an educated guess.

Chart of UK Business Types

Proportion of UK Businesses by Legal Structure

The reason the majority of businesses choose to be sole traders is that it is a very simple way to set up and run your business. The registration with HMRC is simple to do and can be done for free. Once you are registered your only duty is to complete a tax return at the end of the year. You do not have to file the accounts and returns that come with a limited company, nor will you be obligated to employ auditors or have lots of legal drafting done. There is a potential bigger risk in operating as a sole trader in that you are personally liable for any debts the business runs up but as long as you can control this risk being a sole trader is by far the simplest way to run a business.

New Year, New Company: Checklist

New Year New CompanyIf you are one of the hundreds of people every year whose New Year’s resolution is to start a business then congratulations!

Starting a new business can be both exciting and stressful but it does not need to be overly complicated. Below we outline the basic steps you need to take to get your new business up and running.

1) If you have not already got one write a business plan. This does not need to be massively complicated but having a good plan will help you identify risks to your business as well as where your money is going to come from. A good plan can also be very helpful when opening bank accounts and looking for funding.

2) Your business is going to need a name. The name search function on our website will tell you what is available at Companies House and will identify most ‘sensitive’ words which might cause you a problem.

3) Before you finally settle on your business name it is worth checking that the domain name is available so that your email and website addresses can match your business identity.

4) Once you have a plan and some ideas on where to get funding you should think about what legal structure to use. A Sole Trader registration is the easiest way to start a new business. Forming a limited company is also fairly simple but comes with a variety of legal requirements which have to be fulfilled throughout the year. While limited companies are more tax efficient they are also more difficult to take money out of than if you are a Sole Trader. If you aren’t sure which is best for you we can talk you through the options. Either way you will probably need a business bank account.

5) As part of your business plan you should have identified how much funding you need. Although it can be hard to get money out of the banks these days there are still quite a few sources of funding available including new methods like crowdfunding.

6) Once you have your funding in place you can get your website built. The more time you can put into your website the more visitors you are likely to get and, hopefully, this will mean more potential customers contacting you on a regular basis. A website is also a great way to promote a shop opening, product launch or event.

7) Whilst a website is a great way to promote your business you need to give people a reason to look at it. Some positive PR from local newspaper, trade magazine, blogs, social media, networking or good old fashioned leaflet drops will help get people interested in what you are doing.

8) Make sure you are keeping a record of what you are spending and, with luck, what money you have coming in. It may also be worth speaking to an accountant to check you are doing things correctly.

9) Go over your systems, check that you know exactly how you are going to process and fulfil orders. Document your processes and how you expect things to run. This will help ensure you can deliver smooth customer service and make it easier to take staff on if you experience high demand. It’s not very exciting but it will help you to be more professional.

10) Once you have all of the prep-work done you can start doing the hard bit and open for business.

1 in 4 Workers are now Freelancers

How to work freelanceIt seems that there is a national day for everything these days and this week we have National Freelancer’s Day. Freelancing is becoming a more and more common career route, currently about 4.2 million people in the UK freelance; 14% of the workforce. In part this is due to a lack of full time jobs in the market leaving many people with little option but to get by on freelance contracts. Around 1 in 4 people are forced into freelancing after being made redundant from a fulltime job. There are also many people who are forced into freelancing situations by companies who want work doing but are unwilling to hire fulltime staff.

This last freelancing scenario is something HM Revenue & Customs are increasingly clamping down on through their IR35 checks. These are designed to establish whether someone really is a freelancer working for lots of different companies or whether they are conspiring with their employer to avoid National Insurance and Income taxes.

Successful freelancers can earn a lot of money, some reports give an average salary for freelancers over £50,000 per year. Many of those who earn the most from freelancing are professionals with technical skills and industry experience. The highest paid freelancers tend to work in industries likes banking, IT, and engineering.

While the financial rewards of being a freelancer can be high, many freelancers value the extra freedom they have in selecting which jobs they want to take. This does not always translate well to work/life balance though. 1 in 4 freelancers report not taking holidays while 15% say they work more than 51 hours a week.

If you are thinking about going freelance the most straightforward option is to become a Sole Trader. You simply have to register with HMRC as being self employed and then keep track of your business incomings and outgoings. It is a good idea to make the minimum National Insurance contributions (currently £2.65 per week) as you go along. At the end of the year you will have to fill in a tax return and pay tax and National Insurance on the profits from your freelancing. Although many people will be comfortable handling all of this themselves it is a good idea to consult an accountant to double check everything is being done correctly.

Some large companies insist on all of their freelancers becoming limited companies. Becoming limited can be a good decision for some freelancers. The initial set-up fees for a limited company are fairly small, usually under a hundred pounds but you will then need to spend the same again every years getting accounts audited and filed with Companies House. For many people this extra expense will be covered by the greater tax efficiency a limited company can bring. Directors of limited companies can pay lower tax than sole traders and this may be of benefit to some sole traders.

One big decision for many freelancers is whether to be VAT registered. If you are turning over more than £77,000 per year then you have to be VAT registered, below this point it is up to you. It is mainly a good idea to voluntarily register if you are in the Business to Business sector where VAT registration is the norm. Most decent sized companies will expect to be charged VAT on their invoices and by being registered you can reclaim VAT on your purchases. With VAT at 20% this is a potentially huge saving.

Ultimately going freelance is like setting up any business. Unless you already have a steady stream of work coming through you will need to have a marketing plan and consider how you can grow your freelancing business in coming years. Although many people overlook it one of the most important first steps when going freelance is to write a business plan, not least so that you can work out if you are going to earn enough every month to cover the mortgage.

HMRC Campaign Targets Direct Sellers

HMRC Target Direct SellersHM Revenue and Customs have periodic crackdowns on different industries who they believe may not be paying enough tax. Recently they have focussed on eBay sellers, electricians and hair dressers. Their newest target is on ‘direct sellers’. HMRC define direct selling as “when you sell directly to customers usually door to door or in customers’ homes or the workplace”. They go onto say that:

Your selling may involve demonstrating a product in a customers’ home, sometimes at a party, or you might sell door to door, using catalogues. You might only sell to your friends and relatives. As a direct seller you will usually take commission on the sales you make. You may be involved in direct selling as a full time business, to top up your income from another job or to fit around your caring commitments.

HMRC’s concern is because people are often doing this kind of selling on top of existing jobs, or view it as an easy way to earn a bit of extra money, they may not realise they have tax liabilities. This can be further complicated by the way that they are employed. Although they may be described as an agent, representative, distributor or consultant for a particular company they are usually actually self employed. As such they need to be registered with HMRC in the same way as a normal sole trader business would. They should potentially be making regular National Insurance and Tax contributions and be filling out self assessment tax returns at the end of the year. Because of the terminology used and the complexity of contracts it can sometimes be unclear whether a direct seller should consider themselves as self employed or as employed by the company they are contracted to. HMRC have made a video to help people work this out.

If you are a direct seller who is self employed and you have not been making the correct tax contributions then HMRC are giving you until 28th February 2013 to come clean. If you do own up within this time period then they may wave any penalties and allow you to pay what you owe in instalments. They are only making this offer to people who have been working as direct sellers since before 6th April 2011 though. Anyone who started work after this point has to register and pay tax as normal.

If you think that the HMRC Direct Seller scheme may apply to you then you can download a Disclosure Form from their website. If you are a direct seller and want to get registered then we offer free Sole Trader Registration which includes basic accountancy advice so you can get your tax affairs in order.

Advantages and Disadvantages of a Sole Trader


When thinking about opening your own business, you might well have given some consideration to becoming a sole trader. Sole trader, also known as a sole proprietor is one of the types of business available for use within the UK. It is also one of the most popular, for a number of reasons, including the ease with which a business can be set up using this form. However, there are pitfalls to be aware of.

A sole proprietorship is a business owned one person, who has full control of the business and how it is run. They also own all the assets of the business and any profit that it makes. In the same vein, they are also responsible for all the debts and liabilities the business accrues. A sole trader is expected to register as self employed with HM Revenue & Customs and will be required to submit an annual self assessment, but generally speaking their accounting requirements are less onerous than those of a limited company.

It is a common belief that setting up as a sole trader is the cheapest option for starting a new business. However, with our FREE company formation offer, there isn’t much in it and as you can see from our article on the advantages of a limited company, in most cases it is preferable to set up a limited company, rather than as a sole trader.

Advantages of a sole trader

Sole traders benefit from the following advantages:

  • Control - Sole traders maintain full control of their business. Running it how they please without the interference of others.
  • Profit retention – Sole traders retain all the profits of their business.
  • Private data – Information about sole traders is kept private, unlike that of limited companies which is necessarily made public after registration with Companies House.
  • Specialist – Often a small business, sole traders can offer a more personal service with local roots and ties. This can be more appealing to potential customers in the local community.
  • Personal – Because there is no need to confer with other decision makers, sole traders can make decisions quickly and act on them swiftly, providing for the needs of their customers.

Disadvantages of a sole trader

Just like any other form of business, being a sole trader can also have its disadvantages.

  • Liability – sole traders are not seen as a separate entity by the law. Therefore, they are subject to unlimited liability. This means if the business gets into debt, the business owner is liable. In the worst case, this may mean a person risks their home, personal savings and any other assets they have both in and outside of the business.
  • Finance – sole traders often find it difficult to raise finance to fund their business. They may struggle with expansion in the future.
  • Reverse economies of scale – sole traders will be unable to take advantage of economies of scale in the same way as limited companies and larger corporations, who can afford to buy in bulk. This might mean that they have to charge higher prices for their products or services in order to cover the costs.
  • Decision making – all decisions must be made by the sole trader. There is no room for help by others. So the success or failure of the business rests on one person.

As you can see, there are several advantages and disadvantages to starting up a business as a sole trader. Whether it is the best choice for you is a personal matter and varies depending on the type of business you are looking to start. Whatever you decide, here at The Company Warehouse we offer a number of services to help new businesses thrive. Why not take a look around our website today and see how we can help you get your business off the ground!

Related Reading:

Sole trader or Limited Company – What’s the best option?


Here at The Company Warehouse we understand the importance of knowing the legal structure of businesses and the various options available to you when starting up an enterprise. It’s important to make the right choice in order to succeed. There are many differences between the various business types, knowing which one is most suitable is vitally important as the regulations and laws that will govern your enterprise may vary. We are here to help!

To keep it short and simple, the following is a brief overview of the legal structure of businesses, broken down into each type and the advantages and disadvantages of each.

Sole Trader

Sole Trader

Probably the most well known of the business types is “Sole Trader“. We all know someone like this; running a small business, working for multiple clients, sending out invoices, investing their own money into their business and keeping accounts.

Sole Traders, just like partners and members of limited liability partnerships must register as self employed (with HMRC – HM Revenue & Customs).


  • Being your own boss
  • Simple setup and management
  • All profit to the Sole Trader.


  • Danger of unlimited liability and debt
  • Minimal support.



A partnership does what it says on the tin. Two or more people run the business, sharing the expenses and profits alike. Taking equal responsibility for decision making and upkeep. The key thing is the business survives with the partners if one retires, quits or dies then the partnership can no longer exist.

Partners also need to register as self employed with HMRC. They then provide the funds for the business out of their own money and assets. As such they are also personally responsible for any liabilities.


  • Simple start-up and management
  • Pooling of resources and skills (of various partners)
  • Sharing of profits


  • Mutually responsible for debt. Creditors can make claims on one partner for the debts of another.
  • Disagreement
  • Partnership’s can dissolve if one partner leaves

Limited Liability Partnership

Limited Liability Partnership

Also known as an LLP, a limited liability partnership is much like a normal partnership, the difference being in the potential liability. Partners will only be liable up to the amount that they personally put into the business.

Once again, the partners must all register as self employed with HMRC. There are other requirements too. The LLP has to be registered as such, with Companies House. You can see a guide for the steps involved at the Companies House website. There must also be a minimum of two “designated members” on which various responsibilities are placed including signing accounts, preparing and delivering the annual return to Companies House and acting on behalf of the LLP if it is dissolved for any reason.

As with a standard partnership, partners in an LLP fund the business out of their own pocket, sharing profits, decision making and day to day running.


  • LLP’s are taxed like partnerships rather than a limited company
  • Liability of each partner is limited, so there is less risk


  • LLP’s are subject to fines for late submission of accounts to Companies House
  • Set-up is more complex then for a standard partnership
  • Major problems can occur in the event of disagreement

Limited Liability Company

Limited Liability Companies

Limited liability companies are seen as an entity in their own right, separate from its members and their assets. As such, they are not subject to liability and the only risk is loss of any funds already invested into the company.

There are three main types of company under this umbrella. Each must be registered at Companies House and are governed by the Companies Act 2006. There are other requirements like having at least one or more directors. Limited Companies are the best choice for most people and this is our speciality. If this looks like the best option for you, have a look at our limited company formation packages  or speak to a member of the team on 0800 0828 727

  1. Private Limited Companies – cannot offer shares to the public but can have one or more members
  2. Public Limited Companies (PLC) – issue shares to the general public and must have at least £50,000 worth of shares in the market before it can legally trade.
  3. Private Unlimited Companies – uncommon and usually only created for specific reasons.

As you can see, finances comes from shares but also from loans and profits re-invested into the company.


  • Liability limited to investment only
  • Shares can be sold for funds


  • Late fee’s for account submission to Companies House
  • Other legal duties and responsibilities.

Social enterprise, growing plant, growing a business

Social Enterprise

In most cases, designed for the good of the community, a social enterprise reinvests profit in the people. There are many types, but the most common are co-operatives or housing associations.

If you are still unsure what the best choice is for you, or you are thinking of registering as a sole trader or starting a company we’re here to help. Among other things you’ll need a company name. We can help you check the name you want to use isn’t already in use, help with registration, get you a certificate of incorporation and support your business as it grows with our business support services.