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What is a Sole Trader?

Conal Yarwood-Frost
17 Nov 2021

If you’ve ever researched going into business for yourself and becoming self-employed, you may have come across the term “sole trader.” You might ask yourself what does this mean and how can it affect me? 

In short, a sole trader is a self-employed person that is the sole owner of their business. As a term, it can be used interchangeably with sole proprietorship and generally refers to the structure of a business. If you chose to register as a sole trader, you and your company would become one legal entity in the eyes of the law and you would be entitled to all your profits after tax. 

Thanks to the relative ease with which one can become a sole trader, it has become a very popular option for self-employed people. There are an estimated 6 million sole traders running a business in the United Kingdom [1] and if you’re planning to open a small business it might be the right option for you.

Self-Employed Vs Sole Trader 

It may seem that there is little difference between being self-employed and being a sole trader. While there are certain similarities between the two, it’s important to make the distinction as they are legally different [2] and choosing the right business structure is very important to the long term viability of your company.

If you are simply registered as self-employed, all it means is that you are not employed by anyone but yourself or your taxes are collected through the HM Revenue & Customs’ (HMRC) PAYE system [3]. By becoming a sole trader, you streamline your processes and combine your personal assets with your business assets. 

It’s important to note that as a sole trader, you are solely responsible for the day-to-day running of your business and incur all the risk that comes along with that. When you first begin working for yourself, you must inform HMRC within three months of starting and ensure that you complete a self-assessment tax return each year. 

When Should I Register as a Sole Trader? 

The decision as to when to register or not is up to you as long as you meet the three month deadline. There are however three circumstances where you must register. These are: 

  • If you earned over £1000 from self-employment between the 6th April 2021 and the 5th April 2022
  • If you must prove that you’re self-employed such as when you claim tax-free childcare
  • You need help applying for benefits with voluntary Class 2 National Insurance payments [4]

Before you register as a sole trader, make a small business checklist of everything you need to do. This will help keep unexpected headaches to a minimum in the long run. 

Choosing a Name 

As the sole proprietor of your business, it’s up to you to come up with a suitable name for your company. Choosing a business name is an important step in legitimizing yourself as a sole trader, so you must make sure to do it properly.

Your business’ name can be almost anything you want. Some people choose to keep it simple and use their own name, some go for something professional-sounding, and some even choose to make their name a catchy phrase or a witty joke. Whatever name you choose, make sure it’s a good representation of who you are as a self-employed person and what your company does.

There are a few guidelines that you must follow when naming your business: 

  • Names that are rude or offensive will not be accepted 
  • Sole trader business names can’t include the words limited, Ltd, Limited Liability Partnership, LLP, public limited company, and plc - these terms could give the impression your company is incorporated
  • Names can’t use registered trademarks - this opens you up to legal action from the owner of the copyright. You can check registered trademarks on the government website [5]

If you’re unsure about whether or not your name would be in breach of any of these guidelines, it’s safer to err on the side of caution and choose a different name.

What are the benefits?

As a small business owner, there are many benefits to structuring your company as a sole trader.

For many, the freedom to work for yourself is the biggest benefit. Sole traders have complete control of their company. This means they’re free to run it exactly how they want and make decisions as they see fit. 

Depending on the industry, sole traders have little to no start-up costs. This, combined with the fact that there are very few annual accounting costs, means that you’ll be able to keep a much firmer grip on your overheads. This financial freedom extends to your profits where you alone get to keep everything after tax. 

Sole traders are also able to take advantage of a great degree of financial privacy. Unlike a limited company, where anyone can access their information on the government’s Companies House [6] website, sole traders are able to keep their finances strictly private. No member of the public is able to see a self-employed person's finances unless they choose to share them themselves.


While there are undeniable advantages to becoming a sole trader, there are several downsides. As long as your business keeps running smoothly, you should be able to avoid any of these adverse effects. 

Unlimited liability refers to the fact that as a sole trader, you are personally liable for any and all of your business’ debts and losses. For sole traders, there are no distinctions between personal and business assets. If worse comes to worst and you suffer a big financial hit, debtors could come for assets such as your house or car [7].

Due to unlimited liability, some sole traders may have difficulty getting access to finance. The private nature of your finances and the inherent risk of being self-employed means that lenders may be reluctant to offer as much as they would to a limited company [8]. In turn, this can contribute to credibility issues where your company is perceived as less prestigious than a limited company [9]. Some traders try to get over this problem by emulating the practices of successful businesses.

Being legally one and the same as your company can sometimes lead to complications when you try to sell it or transfer ownership to someone else when you retire. The process of separating personal and business assets means that some people choose to transfer their business into a limited company [10]. As a limited company is owned by its shareholders, the personal and business assets of the CEO are separate making the transfer of ownership much easier.

Make Being A Sole Trader Easier 

Becoming a sole trader is a decision that shouldn’t be taken lightly. If you do decide to go down the self-employed route, it’s important to make sure you have the tools you need to run your business the way you want to. 

With its state-of-the-art technology, Epos Now offers POS systems that will help you run your business easily and efficiently. Using an innovative cloud-based system, you’ll be able to control all the vital aspects of your business from one easy-to-use point.

Our systems can integrate with thousands of popular apps to make the process even simpler. 

Get in touch today and see how we can help you.