When starting up your own business, there are a few different business structures that you can choose from. Two of the most common are sole trader and self-employed. While these two terms are often used interchangeably, there are actually some key differences between them.
For starters, being self-employed simply means that you are your own boss. This could mean running your own business or working as a freelancer. On the other hand, being a sole trader means that you are the sole owner and operator of your business. This means that you have complete control over all aspects of the business, from day-to-day operations to strategic decision-making.
However, it also means that you are solely responsible for any losses or debts incurred by the business. When choosing a business structure, it is important to weigh up the pros and cons of each option to see which is best for you and your business.
Knowing even the smallest of details about the way a business is set up or how it is structured can make the world of difference when deciding on what type of venture you want to make a career out of.
Let’s talk through them both individually in order to analyse this further:
Self-employed vs sole trader
Self employed vs sole trader are basically the same thing, though there are in fact tiny differences to remain aware of. As a sole trader it is your responsibility and your responsibility alone to make your business successful. As someone who is self-employed it doesn’t necessarily have to be that way.
As you can likely see, there is indeed much crossover between the two different self-employment types, but those little changes across these two business structures can make all the difference. If you’re still considering what path to take your venture down and weighing up your options seems to be becoming rather tedious, read on and we’ll give you some extra details to help develop your understanding further.
There are also occasionally differences in the types of business bank accounts used by both self-employed people and sole traders, so doing some research in that area in your free time may go a long way in helping your understanding also
What counts as self-employment?
Being self-employed has a lot of advantages: you’re your own boss, you can work flexible hours, and you get to choose which projects you work on. However, there are also some downsides. For instance, you’re responsible for your own taxes, and you don’t have the same protections as employees when it comes to things like sick leave and holiday pay.
Additionally, finding clients and marketing your services can be a lot of work. But if you’re organised and motivated, being self-employed can be a great way to earn a living.
What is the sole trader meaning?
A sole trader is someone who owns an unincorporated business by themselves. This type of business structure is simple and less expensive to establish than other types, such as a partnership or a corporation. A sole trader can be found in a wide range of businesses, from small, local enterprises to large international companies.
The sole trader business structure has several benefits, including flexibility and sole decision-making power. However, sole traders also have unlimited liability for their business debts and obligations, meaning that their personal assets are at risk if the business fails. This is due to having personally liabilities for things like tax, suppliers and business loans.
For this reason, sole traders must carefully consider the risks and rewards of going into business before making the decision to operate as a sole trader.
Can a sole trader have employees?
Can a sole trader have employees? Yes, as long as the sole trader remains the only owner of the business. If the sole trader wants to hire employees, they will need to register as an employer with HMRC and submit a PAYE registration form.
However, it’s important to know the difference between a freelancer, employee, and worker as they have different rights. The government website explains the differences between employment statuses. Sole traders can have employees as long as they are aware of the rules and regulations surrounding employment.
Conclusion
To be clear there are no real differences between self employed and a sole trade, sole employed tend to be one man operations such as freelancers etc, where sole traders are self-employed but tend to have a small business that is no incorporated.
The being self employer or carrying out a trade as a sole trade it does not allow a limited liability and therefore all liabilities in the past and the future will be suffered by the individual personally.
F.A.Q’s
Is it better to be self-employed or sole trader?
There is no better option when it comes to Sole trader vs. self-employed. The main difference between sole trader and self employed is that sole trader describes your business structure; self-employed means that you are not employed by somebody else or that you pay tax through PAYE.
What are 3 disadvantages of being a sole trader?
The three disadvantages of being a sole trading include that: you have unlimited liability for debts as there's no legal distinction between private and business assets. your capacity to raise capital is limited. all the responsibility for making day-to-day business decisions is yours. retaining high-calibre employees can be difficult.
Lee Jones is a seasoned Business Finance Specialist with over two decades of invaluable experience in the financial sector. With a keen eye for market trends and a passion for helping businesses thrive, Lee has become a trusted advisor to countless organizations seeking to navigate the complexities of finance.