Sole trader – What is a sole trader?
A sole trader – also known as sole proprietorship – is a simple business arangement, 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 – while 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 become a sole trader, 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 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 grow their business. Debitoor accounting & invoicing software is intuitive and easy to use– making it easy for sole traders to manage invoices, tax reports, expenses, and banking.