The obvious advantages of ‘being your own boss’ aside, setting up as a Sole Trader is easier and more cost-effective than setting up a limited company. Many freelancers or one-man bands begin as Sole Traders due to the ease of setting up and managing the admin that comes with it. It is also beneficial because you don’t have to rely on anyone else but yourself to make it a success.
Some advantages of being a Sole Trader are:
As a Sole Trader, you avoid all the extra paperwork you would have if you were setting up as a limited company. You don’t need to register at Companies House, appoint directors or shareholders, or keep a paper trail of annual accounts for corporation tax. You do need to keep a record of what sales and expenses your business has, however it’s much simpler than operating as a limited business as it’s only for a tax self-assessment.
Another benefit is you can avoid having to deal with IR35, as these HMRC rules don’t apply to Sole Traders, only Limited Companies.
As a director of a limited company, your details will be stored and accessible at Companies House; such as your address, date of birth and any other businesses you are connected to (including previous business ventures). However, if you are a Sole Trader you do not need to state any information and are protected by HMRC’s taxpayer confidentiality rules.
This gives your competition less to know about you which makes it difficult for them to compete with you in your marketplace.
Unlike a limited company, you will not need to appoint any solicitors or formation agents to help you set up. You also don’t have to register and maintain your business name at Companies House at an annual fee. There are many tools out there to invoice and upload receipts to a system automatically from accounting software such as Xero, helping you to calculate your tax ready for your self-assessment as a Sole Trader, therefore you could also cut costs in hiring an accountant if finances aren’t your strong point.
Another advantage of being a Sole Trader is all post-tax profits will be yours, as well as all the decision making. As a Limited Business, you may need to consult shareholders of any changes before making them and give them a cut of the earnings, however as a Sole Trader you have the freedom to do what you want to earn the money for yourself.