Work is a huge part of life and very few people enjoy not having ultimate control over theirs, which is why more and more people are turning to self-employment. The benefits of self-employment are numerous, so it’s easy to get drawn in by the promise of flexibility, autonomy and – let’s face it – more money.
Every upside has a downside though, and being self-employed can also mean long hours, loneliness and an unstable income. My Health Assistant helps to combat these common problems with our comprehensive support platform. You can track and analyse your profile’s performance, network with fellow professionals, and fill slots in your calendar, helping to ease your peace of mind.
You might feel more comfortable going self-employed on a part-time basis at first. This way, you can continue to work for an employer part of the week while you build your confidence and client base, before deciding whether to take the plunge full-time.
While there are multiple forms of business entity, the two main ways of working for yourself are as a self-employed individual, or as an employee of your own limited company. It’s important to think through carefully which one is right for you, as your choice will impact your personal liabilities and the way you pay tax.
Here’s a breakdown of the differences between working as a sole trader versus a limited company, including the pros and cons of each.
A sole trader is an individual business owner who has complete responsibility for the company’s operations. It’s often assumed that sole traders can’t hire employees, but this isn’t true. Being a sole trader means you technically employ yourself and are also free to employ others.
The main difference between working as a sole trader and setting up a limited company is that sole traders are personally liable for any losses or debts incurred, whereas limited company owners are not. In law, a sole trader is the same entity as their business. This means that any issues your business runs into are your personal responsibility, but it also means that you get to keep all of the profits after tax.
Registering as a sole trader tends to be the easiest route for anyone who decides to work for themselves, as you can usually start work as soon as you find a client. Just make sure that you’ve registered as self-employed by the October following your first tax year of self-employment.
There are few rules and regulations to be aware of as a sole trader, with the biggest responsibility being remembering to register for Self Assessment tax. You’ll be given a unique tax reference (UTR) which you’ll use to pay taxes once a year by 31st January.
As a sole trader, there are limited admin tasks. Aside from your Self Assessment tax return, it’s a good idea to stay on top of your management accounts with monthly invoicing and payment tracking. Other than that, there is little else you need to worry about.
The most significant downside of being a sole trader is that you’re liable for your business’ debt. This means that, should your business incur any losses, your personal assets (such as your house and car) might need to be sold in order for you to pay off your debt.
While scaling your business as a sole trader is possible, it often proves to be difficult. This is because being a sole trader limits your management and capital capabilities.
As a sole trader, you can fund your business with your savings or with help from family and friends. In some instances, it’s possible to take out a bank loan, but this is usually a lot more difficult than it is for limited companies.