Business Structures for Start-ups: Sole Trader
Every founder knows that the business structure they choose at the time of starting a new business will determine how long it takes to get your business trading, as well as its obligations regarding accounting and tax. Therefore, they need to think in advance about their legal structure and get familiar with the set of rules and requirements to remain compliant.
In this blog, we will briefly talk about Sole Trader ( also known as Sole Proprietorship), one of three business structures, its legal requirements, and the processes needed to register as one.
Advantages & Disadvantages
A sole trader is a single individual running his or her own business and this path is the most common choice for a start-up due to the minimal requirements to register. If you’re a sole trader, you run your own business as an individual and are self-employed – which means you can claim allowance and self-employment reliefs. although you are allowed to employ staff. You will also pay a share of the total profits as tax. The founders that choose this path, don’t have to register at Companies House, but they must notify HMRC.
Some of the advantages, associated with being a sole trader, are privacy as you don’t need to disclose your financials publicly, minimal time spent on paperwork and administration, a rather easy taxation process, the ability to have full control of the business, and retention of all profits without the need to pay out dividends.
On the other side, the sole traders aren’t separate from the company – which means that those founders hold full responsibility for the company’s debts and are personally prosecutable for any liabilities. It could potentially be harder to seek fundraising due to the lack of credibility.
How to register as a Sole Trader?
Registering your business as a sole trader is a rather straightforward process. Firstly you will need to register for Self Assessment (online) and file an annual tax return. You’ll also need to register for VAT if you earn more than £85,000 per year. If you are working as a contractor or a sub-contractor in the construction industry, you will have to register for the Construction Industry Scheme as well.
Finding the right business structure for your start-up is crucial as it will have implications on your business’s taxation, finance, and overall business success. If you need advice on what business structure is right for you, feel free to get in touch with our team of experts.