Self employment is great for a really small business that does not require protection of limited liability. It is easy to administer with fewer accounts and tax filing deadlines. So it is the simplest way to run a business.
However being a sole trader does involve taking on some personal financial risk. Sole traders are personally liable for their debts (for instance to HMRC and suppliers) if their business fails. This may not be a problem if you are starting up a low-
Being a sole trader is not so great for tax planning and once your profit goes above £20,000 can be expensive in the amount of tax you pare compared with being a Limited Company.
As a sole trader business you:
- Keep proper business records throughout the year.
- Pay income tax and national insurance on any business profits made during the year
- You will also have to make flat-
rate Class 2 National Insurance contributions (NICs) throughout the year (£2.80 a week payable every six months).
- You or your accountant must complete a self-
assessment tax return each year, detailing your income and expenses.
- Take money out of your business as drawings ( you are not employed by the business). Drawings are not an expense of the business so do not affect your profit or the tax you pay.
You can employ people (once you have registered an employer with HMRC) and you may have to register for VAT.