What is a sole trader?

Definition of a sole trader

A sole trader is a business owner who is not legally separate from their business and whose business has no other owners.

No legal separation means that if the business is successfully sued, the creditor can compel the owner to sell their personal assets, such as their house or their car, to pay the business's debts.

That's the bad news, but the good news is that sole traders won't pay any extra tax if they take out more from the business than they've put in.

Sole traders also have much less paperwork to file than businesses run as limited companies. They have to file only one document with HMRC each year (the Self Assessment Tax Return), and none to Companies House. A limited company and its director have to file at least two documents to HMRC and two to Companies House each year.

Find out more about the advantages and disadvantages of being a sole trader.

Got questions? Ask Emily!

FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.

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