Being a Sole Trader: The Pros and Cons

So, you’re thinking about becoming a sole trader? Maybe you’re a plasterer, a freelancer, or just someone ready to ditch the 9-to-5 grind and be your own boss. Before you take the plunge, it’s important to know what being a sole trader really means—and whether it’s the right fit for you.

In this blog, we’ll break down what it means to be a sole trader, the perks, and the challenges that come with it.

What’s a Sole Trader?

A sole trader is one of the most popular business structures for small businesses in the UK. It’s also the simplest and cheapest to set up. As a sole trader, you are the business—you call the shots, handle the day-to-day, and are fully responsible for everything, including your taxes and VAT (if you’re VAT registered). You’ve got total control, but with that comes all the responsibility too. Other options? Partnerships and companies, but they come with different rules and complexities.

The Advantages of Being a Sole Trader

You’re the Boss
This is probably the number one reason people go solo. You’re the one steering the ship, making all the decisions, and setting your own rules. No more answering to a boss, partner, or shareholders—everything is under your control. That freedom? Priceless.

Low Setup Costs and Simple to Start
Setting up as a sole trader is quick and easy. You’ll need to:

• Get a self-assessment Unique Taxpayer Reference (UTR)

• Have your National Insurance (NI) number ready

• Register for VAT if your turnover is over £90,000

• Register for self-assessment by October 5th following the tax year you start trading

Depending on your industry, you might need extra licenses or permits, but overall, the process is straightforward. You don’t need to open a separate business bank account (though it’s a smart idea), and with minimal overhead, it’s easy to get started. As your business grows, you can always switch to a different structure later.

You Keep All the Profits
That’s right! After paying your taxes, whatever profit you make is all yours. No splitting profits with shareholders or partners—every penny you earn stays in your pocket.

Flexible to Change Later
Not sure how big your business will grow? Starting as a sole trader gives you flexibility. You can easily switch to a partnership or a limited company as your business expands without the headache of dissolving a company. This adaptability is great if you're starting small but have big plans for the future.

The Disadvantages of Being a Sole Trader

But before you jump in, there are a few things to be aware of...

You’re Liable for Everything
As a sole trader, you’re on the hook for all the debts and legal issues your business might face. There’s no legal distinction between you and your business, which means if something goes wrong, your personal assets—your house, your car—are on the line.

Higher Tax Bills as You Grow
At first, being a sole trader might save you on paperwork and costs, but as your business grows, so can your tax bill. Limited companies often benefit from tax efficiencies that sole traders don’t, especially once your profits increase. At a certain point, you might find that switching to a company structure could save you some serious cash.

No Sick Pay or Holiday Pay
One of the perks of being employed is that you get paid whether you’re at work or not. As a sole trader, you only make money when you’re working. No paid holidays, no sick days. It’s all down to you to keep the cash flowing.

More Responsibility
Being your own boss sounds great, but it also means you’re responsible for everything. From marketing to bookkeeping to dealing with clients, it’s all on your shoulders. Some people thrive in this environment; others find it a bit overwhelming.

Key Takeaways

Being a sole trader is great for people who want full control, minimal setup costs, and the ability to keep all the profits. But with great freedom comes great responsibility. You’re personally liable for everything, and as your business grows, so might your tax obligations.

If you’re starting small and want flexibility, being a sole trader can be an ideal way to test the waters. But if your business takes off, it might be worth considering other structures like a limited company to save on taxes and protect your personal assets.

At the end of the day, it’s all about what works best for you. Whether you stay a sole trader or transition to a different business structure later on, the most important thing is getting started.

Who Are Kernow Accountancy?

Kernow Accountancy is a family-run business that uses advanced technology to support your company. Our team of accountants and bookkeepers handles your finances so you can focus on growing your business.