Some Reasons to be a Sole Trader
Setting up as a sole trader is the most popular way of starting up a new business in the UK. It’s especially common amongst those going into business on their own for the first time. Starting your business as a sole trader has a number of advantages. These must be set against the disadvantages of the sole trader business model. The advantages of operating your business as a limited company. The positives about being a sole trader are:
Being a sole-trader, you are in complete control of your company, and in the sense of ‘being your personal boss’. There is no need to consult with any other shareholders or directors, take note of their opinions, or alter your idea of what you want to achieve with the business. You are able to develop the business exactly in the way you want.
Since you are able to make your own choices on your own, it could be easy and fast to alter the company in order to adjust to changes in the market. For instance you could change the structure of your pricing or the services you offer by adding new products or eliminating those you don’t trust. This ability to make quick decisions and then implement them swiftly is an benefit when you are a sole-trader operating in an ever-changing, competitive market.
In addition to acting as the only decision maker an individual trader will typically be in close contact with their clients. They are therefore able to be attentive to the requirements of their clients and their demands and able to respond swiftly and effectively to their needs.
A few customers, particularly those seeking personal services might be turned off by the fact that it’s a small-sized company even if it’s passionate about customer service. This is especially true for local services, where a sole trader could gain trust and build confidence by relying on local roots and connections. A limited company, even if it is controlled by one person could appear unassuming and too corporate to certain.
Easy and quick to start
While forming a limited company is far easier that it used to be, setting up as a sole trader remains the quickest and simplest way to get your business up and running.t is not necessary to register your company through Companies House, therefore there are no Companies House forms to complete. There is a need to must inform HMRC that you are self-employed and running your business as sole trader.
Low setup costs
A lot of people use the services of a solicitor or a form agent to establish a limited-company (although it’s not difficult to begin a business by yourself). There’s generally less requirement for professional guidance in the event of becoming a self-employed sole trader. This means that these costs are lowered but not eliminated completely. There are no additional fees payable towards Companies House when setting out as sole trader.
It is also unlikely that you will require any capital to get your company up. Running at the beginning however, it all will depend on the type of work your company will perform. In some industries, operating expenses are very excessive whatever the legal status of the company.
Accounting is easier for sole traders than for limited companies, and there’s no requirement for annual reports or an annual Corporation Tax return, although you’ll still have to keep the records of expenses and invoices. If you’re a sole trader, you have to file a self-assessment tax return that includes details of the earnings from trading you’ve conducted as sole trader.
Since there’s less accounting tasks to do and your accountant could cost you lower than you would if were operating as a limited company.
It’s easier to change your mind
People starting out on their own in business for the first time often do so on a part-time basis. They may remain employed elsewhere so they retain the security of a salary. Many people dipping their toes into the water of running a business will choose to do so as a sole trader. This allows them to wait until they have more confidence in the business. Its ability to support them and their family before deciding whether a limited company might work better. With its less formal appearance, operating a separate business as a sole trader might also be easier to explain. Justify to your current employer than forming a limited company for the same purpose.
If you start out as a sole trader, you can always choose to form a limited company for the business at a later point. If you form a limited company at the outset and later want to operate as a sole trader. You’ll have to go through a more formal process of closing the company first.
The right business structure will depend on your individual circumstances. For many the advantages of a limited company will outweigh the potential benefits of operating as a sole trader. There are also disadvantages to operating as a sole trader, which you should consider. Professional advice from an independent professional who knows your circumstances. Such as your accountant or solicitor, is always useful if you’re unsure how best to set up a new business.