Being a sole trader is the simplest way to run a business - it does not involve paying any registration fees with Companies House. Accounts and record keeping is straightforward and any profits you make belong to you. However, you are personally liable for any debts that your business runs up, which make this a risky option for raising capital.
Management and raising finance
You make all the decisions on how to manage your business. You raise money for the business out of your own assets and/or with loans from banks or other lenders.
Records and accounts
You must keep records showing your business income and expenses and any profits go to you.
Tax and National Insurance
As you are self-employed:
- your profits are taxed as income
- you pay fixed-rate Class 2 National Insurance contributions (NICs) regardless of any profits you make
- you pay Class 4 NICs on any profits
- you need to register for Self Assessment and complete a tax return each year
As a sole trader, you are personally responsible for any debts run up by your business. This means your home or other assets may be at risk if your business runs into trouble.
For more information on starting your own business, see set up and register as self-employed.