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What is a Sole Trader and Self Employment

From time to time, you may hear that someone is Self Employed, you may even hear someone describe themselves as a Sole Trader, but not many people understand what those differences are.

 

Whilst they are both interchangeable when describing a person, there is a slight difference to the meaning of each.

 

A Sole Trader, is someone who is in full control of their own business, they are indeed Self Employed in their own right, and they can also employ other people, but they have full control over the day to day running of the business, and they are entitled to spend all of the income their business receives after tax.

 

Someone who is Self Employed but not a Sole Trader, is usually a person who forms part of a group of other Self Employed people who each have a percentage control over one or more businesses.

 

For example, A Self Employed Partnership, describes a business which is controlled by more than 1 Self Employed person, and so they would not, by definition, be classed as a Sole Trader. They would not be entitled to all profits after tax, but instead the profit before tax, would be divided between all Self Employed Partners.

 

In both situations, whether you are a Sole Trader, or Self Employed, you would still pay your taxes via Self Assessment rather than PAYE like employees do.

 

There are other business structures which you could also describe as being Self Employed, but would also follow the same logic. A Ltd Company, could have 1 director, who is in full control, you could call this person Self Employed, but they would not be a Sole Trader if there were more than 1 director in control.

 

Other examples of people who are Self Employed are:

  • A Hairdresser
  • A Plumber
  • Electrician
  • Personal Trainer

 

If you are receiving income which would be classed as Self Employed, or a Sole Trader, you are required to inform HMRC and register for Self Assessment, within three months. You will be responsible for preparing and submitting your Self Assessment either by 31st October of each year for paper filing, or 31st January the following year, by filing online. You many appoint an accountant or a nominee to do this for you, but you remain responsible for making sure your income and expenses are declared on time, and the tax due on this is paid.

  

Click Registering for Self Assessment to find out more or go back to view our other articles.

 

 

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