Sole Trader Advantages and Disadvantages

Sole Trader Advantages and Disadvantages


In this article we discuss:

Choosing the Right Business Structure When Working For Yourself

When you are setting up a business it is important to choose the right business structure for you. Running your business as a self employed sole trader business structure is an attractive option for many. With maximum freedom, and low filing requirements, being a sole trader as a popular business structure. Lets take a look at some of the many advantages and also disadvantages of the sole trader business structure.

Advantages of Starting a Business as a Sole Trader

1. A Sole Trader Business is Quick to Set Up

Unlike when you have your own Limited Company, if you are a sole trader, you don’t need to register your business on the Companies House website. You can therefore start trading straight away. When becoming a sole trader, you will just need to inform HMRC by registering as self-employed with the HMRC tax system, and complete a self assessment tax return each tax year.

2. Lower Costs

With a sole trader business owner there are less accounting requirements, keeping fees much lower than if you were to setup as a Limited Company. This keeps start up costs for a sole trader structure low.

3. Business Privacy

There is no requirement to make your business annual accounts open for public inspection when you are a sole trader.

4. Less Paperwork Involved

When you are trading as a sole trader there are fewer filing requirements than if you were to be a Limited Company director. You will just need to file your annual personal tax return by the 31st January each tax year. You will owe tax on any profits that are over your annnual tax free personal allowance.

5. Flexibility

Once you have setup as a sole trader, you may decide further down the line to switch to trading under a Limited Company, where you would then need to file accounts with Companies House at the end of each financial year, file an annual confirmation statement to Companies House, and pay Corporation Tax on any profits instead of personal tax. This is an easy transition. Much easier than if you were trying to switch from a Limited Company to a sole trader.

6. Be Your Own Boss

The most attractive advantage of them all for any small business owner. When you run a sole trader business, you are the sole owner and can be your own boss. No shareholders or partners, every decision you make for the business is your own. You have full control. And even better you don’t have to share profits. As a sole trader structure consists of only one person, once you had paid your tax under self assessment, all of the profit is yours.

Disadvantages of Starting a Business as a Sole Trader

1. A Sole Trader Has Unlimited liability

As a self employed business owner, you are personally liable for any business debts and losses. If the business ran into financial trouble, your personal assets could be at risk. Unlike Limited Companies, which are classed as a separate legal entity.

2. A Sole Trader May Find it Harder to Raise Capital Finance

If your sole trader business requires a loan or capital investment, lenders may see sole proprietorship as a higher risk compared to other business structures. Banks are less likely to offer you finance if you are a sole trader. The amount you can borrow and the rates of interest you are offered as a self employed person may not be as favourable as they would be had you been a Limited Company.

3. A Sole Trader Has Less Tax Planning Opportunities

Sole traders are more limited in their options when it comes to being tax efficient. You simply pay tax and National Insurance on your business profits made each year.

How To Set Up As A Sole Trader

Are you thinking of setting up as a sole trader? Simple Taxes can help. Send us your details and one of our dedicated accountants will get back to you within 24 hours.

You can also find our blog here on how Simple Taxes Make Tax Returns simple for you.

The HMRC website also has guidance on how to set up as a sole trader.

Further Information

For further information on self-employment please see the HMRC guidance here.

If you need help with sole trader setup, accounts or tax returns, get in touch with us today at .


The information contained in this blog is for general information purposes only, and not for accounting and tax advice. You should speak to a qualified professional about your specific circumstances before acting upon any of the information in this blog.

Date Published: January 2023