{"id":23529,"date":"2023-01-31T14:10:03","date_gmt":"2023-01-31T14:10:03","guid":{"rendered":"https:\/\/taxfix.com\/en-uk\/?p=23529"},"modified":"2023-01-31T14:10:04","modified_gmt":"2023-01-31T14:10:04","slug":"are-there-disadvantages-of-sole-trader-businesses","status":"publish","type":"post","link":"https:\/\/taxfix.com\/en-uk\/self-employed-tax-returns\/are-there-disadvantages-of-sole-trader-businesses\/","title":{"rendered":"Are there disadvantages of sole trader businesses?&nbsp;"},"content":{"rendered":"\n<p>So you\u2019ve decided to work for yourself? Great! But now you\u2019re stuck wondering what it means to set up as a sole trader. Are there any disadvantages to sole trader businesses instead of a limited company, you ask? Let\u2019s have a look! \ud83d\udc47<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">First of all, what exactly is a sole trader business?<\/h2>\n\n\n\n<p>A sole trader is someone who is self-employed. You\u2019re responsible for owning and managing your business.&nbsp;<\/p>\n\n\n\n<p>Some occupations that can be sole traders are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Tradespeople (plumbers, electricians)<\/li>\n\n\n\n<li>Freelancers (graphic designers, photographers)<\/li>\n\n\n\n<li>Independent contractors (Uber\/delivery drivers, tutors)<\/li>\n<\/ul>\n\n\n\n<p>Basically, as a sole trader, you and your business are one, which makes it different from a <a href=\"https:\/\/taxfix.com\/en-uk\/glossary\/limited-company\/\" target=\"_blank\" rel=\"noreferrer noopener\">limited company<\/a>.<\/p>\n\n\n<\/div> <!-- .c-body -->\n\n<div class=\"b-highlight-mini m-nude m-align-left\">\n    <div class=\"b-block-body\">\n        <h3>Limited company<\/h3>\n<p><!-- \/wp:heading --> <!-- wp:paragraph --><\/p>\n<p>A limited company is a type of business structure that makes a company *legally* separate from its owners. So business and personal finances do not mix, and owners are not personally responsible for any company debts (unlike sole traders).<\/p>\n<p><!-- \/wp:paragraph --> <!-- wp:paragraph --><\/p>\n<p>Whilst sole traders have to pay income tax and national insurance on their profits, limited companies pay corporation tax (and VAT if profits are over \u00a385,000 a year).<\/p>\n<p><!-- \/wp:paragraph --> <!-- wp:paragraph --><\/p>\n<p>For a full breakdown of the differences between a sole trader and a limited company, read our guide <a href=\"https:\/\/taxfix.com\/en-uk\/self-assessment-basics\/sole-trader-or-limited-company\/\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a>.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n\n    <\/div>\n<\/div> <!-- .b-highlight-mini -->\n\n<div class=\"c-body\">\n\n\n\n\n<h2 class=\"wp-block-heading\">OK, so what are the disadvantages to sole trader businesses?<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">1. You\u2019re responsible for making all business decisions<\/h3>\n\n\n\n<p>As a sole trader business, you\u2019re in charge of the day-to-day management of the business &#8211; how many clients you take on, how much you\u2019re earning etc. This also means you have to solely deal with any problems that arise, including demanding clients or even legal issues.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">2. You have <a href=\"https:\/\/taxfix.com\/en-uk\/glossary\/unlimited-liability\/\" target=\"_blank\" rel=\"noreferrer noopener\">unlimited liability<\/a><\/h3>\n\n\n\n<p>What this means is that if your business runs into financial difficulties (e.g. if you take out a business loan and can\u2019t afford to pay it back) your personal possessions are also at risk. \ud83e\udee3<\/p>\n\n\n\n<p>This could be a car, any savings you have or even your home. Remember, if you\u2019re a sole trader, you and your business are <em>one<\/em>.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">3. Income isn\u2019t guaranteed\u00a0<\/h3>\n\n\n\n<p>As a sole trader, if you don\u2019t work, you don\u2019t get paid (it\u2019s not for the weak \ud83d\ude05).<\/p>\n\n\n\n<p>This could make it difficult to plan holidays, or even take days off when you\u2019re ill. On the other hand, if you set your business up as a limited company, your earnings are a bit more secure as you could pay yourself a wage. You\u2019d do this by setting up a <a href=\"https:\/\/taxfix.com\/en-uk\/glossary\/paye\/\" target=\"_blank\" rel=\"noreferrer noopener\">PAYE<\/a> scheme for yourself.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">So\u2026 are there <em>any<\/em> advantages to a sole trader business?<\/h2>\n\n\n\n<p>Of course! While some aspects of being a sole trader give you lemons \u200b\u200b\ud83c\udf4b, there\u2019s still a lot of lemonade to be made, folks.&nbsp;<\/p>\n\n\n\n<p>Here are just a few of the reasons why you <em>should<\/em> consider setting up as a sole trader:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">1. All remaining profits belong to you\u2026 and you only<\/h3>\n\n\n\n<p>As a sole trader, your unlimited responsibility for your business also equals full access to profits. You won\u2019t have to share your profits with any members of your organisation\u2026 because you are the only member. \ud83e\udd11<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">2. Much less paperwork is required<\/h3>\n\n\n\n<p>All limited companies have to register with <a href=\"https:\/\/taxfix.com\/en-uk\/glossary\/companies-house\/\" target=\"_blank\" rel=\"noreferrer noopener\">Companies House<\/a> and report their accounts on a yearly basis. This information is then made public.\u00a0<\/p>\n\n\n\n<p>And on top of that, limited companies <em>still<\/em> have to file a corporate tax return\u2026<\/p>\n\n\n\n<p>On the other hand, if you\u2019ve chosen to become a sole trader, all you\u2019ll have to do is register as self-employed with HMRC and pay tax through an annual <a href=\"https:\/\/taxfix.com\/en-uk\/self-assessment-basics\/how-self-assessment-tax-return\/\" target=\"_blank\" rel=\"noreferrer noopener\">Self Assessment tax return<\/a>.\u00a0<\/p>\n\n\n\n<p>If that\u2019s too much hassle for you though, give our online <a href=\"https:\/\/taxfix.com\/en-uk\/self-assessment-tax-returns\/\" target=\"_blank\" rel=\"noreferrer noopener\">tax return service<\/a> a whirl! We\u2019ll get your tax return sorted and sent to HMRC on your behalf, in no time at all.\u00a0<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">3. It costs nothing to register as a sole trader<\/h3>\n\n\n\n<p>If you\u2019ve already cashed out on any tools you may need to get your business up and running, then you probably won\u2019t fancy spending an extra \u00a313 to <a href=\"https:\/\/www.gov.uk\/government\/publications\/companies-house-fees\/companies-house-fees#co-inc\" target=\"_blank\" rel=\"noreferrer noopener\">register your business<\/a>.\u00a0<\/p>\n\n\n\n<p>If you choose to set up a limited company, you\u2019ll have to pay the \u00a313 to register, providing you\u2019re not earning the \u00a385k a year threshold that gives you no other choice than to set up as a limited company. \ud83d\ude05<\/p>\n\n\n\n<p>Luckily, <a href=\"https:\/\/taxfix.com\/en-uk\/self-employed-tax-returns\/setting-up-as-a-sole-trader-self-employed-faq\/\" target=\"_blank\" rel=\"noreferrer noopener\">registering as a sole trader<\/a> is free. \u2705<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">I\u2019m a sole trader and need help with tax!<\/h2>\n\n\n\n<p>Whether it\u2019s tax advice you need or you just want someone to file your taxes on your behalf, if you\u2019re a <strong>sole trader<\/strong>, Taxfix can help! Learn more about our services <a href=\"https:\/\/taxfix.com\/en-uk\/services\/\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>So you\u2019ve decided to work for yourself? Great! But now you\u2019re stuck wondering what it means to set up as a sole trader. Are there any disadvantages to sole trader businesses instead of a limited company, you ask? Let\u2019s have a look! \ud83d\udc47 First of all, what exactly is a sole trader business? A sole [&hellip;]<\/p>\n","protected":false},"author":30,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[440],"tags":[414,411],"class_list":["post-23529","post","type-post","status-publish","format-standard","hentry","category-self-employed-tax-returns","tag-employment-status","tag-self-employed"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Are there disadvantages of sole trader businesses?&nbsp; &#8211; Taxfix<\/title>\n<meta name=\"description\" content=\"Have you decided to work for yourself but now you\u2019re wondering if there are any disadvantages to sole trader businesses? 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