SOLE TRADER

Question 1

What is a sole trader?

Answer 1

A self-employed person who is the sole owner of their unincorporated business.

Question 2

Can a sole trader have employees?

Answer 2

Yes - however, administratively cumbersome. They still need to provide NI, payroll, payslips etc.

Question 3

Explain what unlimited liability is?

Answer 3

As an unincorporated business, there is no legal separation between the business and the sole trader’s personal assets/affairs. This means that if the business has debts, their personal assets would be at risk.
The business owner is personally and directly responsible for all debts and liabilities incurred. Their property, money will be at risk, and they could be made bankrupt if unsuccessful.

Question 4

Advantages of a sole trader?

Answer 4

Management and organisation simple
Keep ownership
No specific formalities or legal processes required.
No costs to set up
No onerous decision making, filing, disclosure requirements i.e. administrative burden

Question 5

Disadvantages of a sole trader?

Answer 5

Unlimited liability - huge risk to personal assets.
Private
less expensive
They do need to register with HMRC and pay income tax on their profits (there is an income threshold) and may pay capital gains tax
May be required to register for VAT