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Should I go back to being a sole trader?

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Should I go back to being a sole trader?

Are you running a Limited Company but miss the days of being a sole trader?

It is unusual, but not unheard of, for an individual to want to close their Limited Company to become a sole trader. Perhaps your business did not go as planned? Maybe sales are lower than expected, and you need less admin? Or perhaps you haven’t managed to raise as much capital as you had hoped?

Limited Companies are popular as they offer protected liability. There are also more methods of extracting funds, continuity of the business, and having a recognised legal structure.

However, as a sole trader, you run your own business as an individual and are self-employed. You also keep all your business’s profits after paying tax on them. And some business owners prefer fewer admin responsibilities.

The good news is that even if you’re now running a Limited Company, you can go back to being a sole trader. A Limited Company can cease trading at any time, but, as it has a separate legal entity, it must be removed from (‘struck off’) the Companies House Register. Find out how to close your limited company here.

Whatever you are thinking of doing, we recommend that you weigh up the pros and cons for both before deciding to stay as a Limited Company or go back to being a sole trader.

What are the advantages of being a sole trader?

There’s less paperwork

Sole traders and Limited Company directors must submit a Self-Assessment Tax Return to HMRC. Still, those operating a Limited Company must also submit extra paperwork to regulatory authorities, such as Corporation Tax, Annual Accounts, and VAT returns (if VAT registered).

Failure to submit these returns on time will usually result in significant fines and penalties. However, as a sole trader, you’ll avoid the headache of these returns.

Your accounts are more simple

Compared to running a Limited Company, the accounting process is much more straightforward for sole traders. After all, there’s less paperwork, fewer expenses, and often fewer clients.

Increased privacy

Legally, Limited Companies must be transparent and share certain information with the public, including filing annual accounts and stating the names of directors and shareholders on public registers at Companies House.

As a sole trader, you are not required to provide this.

What are the disadvantages of being a sole trader?

You have unlimited liability

This is the main disadvantage of being a sole trader. Whereas a Limited Company offers limited liability to the business owner, as a sole trader, you and your business will be seen as one entity. This means that you have unlimited liability for your business.

Essentially, a sole trader and their business are the same, so any business actions and debts are the owner’s responsibility. There is no protection of personal finances and assets. Therefore it can be more financially risky.

It can be difficult to secure funding

Sole traders are often riskier than other business structures, so they are less likely to get funding from traditional banks.

Limited Companies can come across bigger than they are, making them appear professional. It also means that a Limited Company is more likely to attract clients and investors than a sole trader.

You are the sole decision-maker

Though this is probably one of the main reasons for being a sole trader, having complete control over the business – together with its direction and goals – it can be a daunting prospect.

In addition, it can be stressful when a business relies on a single person’s actions and decisions, which can lead to poor decision-making.

We can talk you through all of your options and find you the right solution

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