Sole trader – What is a sole trader?
A sole trader - also known as sole proprietorship - is a simple business structure whereby one individual runs and owns the entire business.
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Sole traders are legally responsible for all aspects of their business, and are personally liable for their business’s finances – whilst they can keep any profits, they may also have to repay any debts out of their own pocket.
A sole-trader is self-employed, but they are not necessarily the only worker within the business. ‘Sole-trader’ therefore refers to the legal structure of the business, rather than the number of employees.
Sole traders and their responsibilities
A sole trader is one of the easiest and most common structures for entrepreneurs and new businesses. If you’re thinking about joining the other 3.3 million sole traders in the UK, you will become responsible for:
- Keeping records of your business’s sales and expenses
- Sending a Self Assessment tax return every year
- Paying Income Tax on your profits and National Insurance.
You may also need to:
- Register for VAT. If you have an annual turnover of over £85,000, this is compulsory. As a small business with a turnover under this threshold, you can also voluntarily opt-in to VAT registration.
- Register with HMRC for the Construction Industry Scheme (CIS). Although this only applies if you’re working in the construction industry as a subcontractor or contractor.
Sole Traders and Debitoor
At Debitoor, we’re committed to supporting entrepreneurs and sole traders on their small-business journeys. Our accounting and invoicing software is designed to be easy-to-use and intuitive so you can manage your invoices, tax reports, expenses and banking without any accounting or financial experience.