Simply put, there isn’t really a difference between the day-to-day roles of being ‘self-employed’ and being a ‘sole trader’. ‘Self-employed’ describes you as someone who does not work for an employer or pay tax through PAYE and ‘Sole trader’ is a way of describing your business structure.
Both self-employed and sole trader can be used to describe the same type of roles.
‘Sole trader’ is one of the main types of business structure, as well as ‘limited company’ and ‘business partnership’. If you’re self-employed, chances are you’re known as a ‘sole-trader’.
Sole trader is the simplest business structure as there’s only a small amount of paperwork required to get your business started. A sole trader is personally responsible for any losses that the business makes and responsible for paying tax on profits.
Self-employed can become a little more complicated when it comes to employment law and tax purposes but the easiest way to understand it is; self-employed counts for those that are fully responsible for the success or failure of their business as well as deciding what work you do and when you do it. Someone who is self-employed also has to pay tax through self-assessment without sick pay or holiday leave, rather than PAYE.
Self-employed person can work for as many or as few people as they chose and usually bill clients an invoice in order to get paid.
A sole trader is a self-employed person who is the sole owner of their business. Sole traders do not have to have a director or register with companies’ house.
Examples of someone self-employed:
- A business consultant that works freelance is self-employed and also registered as a sole trader.
- A builder who works his own hours and decides which jobs he does, is self-employed and registered as a sole trader.
- A yoga teacher that holds yoga classes at different gyms, is self-employed and registered as a sole trader.
How do I register as a sole trader?
Registering as a sole trader is pretty simple and all you need to do is notify HMRC that you are self employed and will be paying tax via the self-assessment method. After you have notified them you are ready to go and can start doing business.
Responsibilities Of Being Self-Employed
As a sole trader/self-employed person, you are responsible for submitting your annual tax return along with paying any income tax on any profit you make and national insurance contributions.
If the business employs one or more employees, you are legally required to have employers’ liability insurance.
If the business consists of just one person, then there is no requirement for business insurance unless the profession itself requires insurance under a regulatory body (accountants etc).
For any business, you might want to consider a public liability insurance policy or a professional indemnity insurance policy to protect the business owner in the event of a customer/third party claim.
Check out our FREE Ultimate Guide To Insurance to see which insurance suits your business best.