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.

Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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