Self-employed vs sole trader – what is the difference?Wondering what the exact difference is between being a sole trader and being self-employed? At times there can lack real clarity as to what the variation is between the two of them, and it can be especially unclear if you are new to the world of self-employment. Payday Bad Credit is going to explore the way in which they differ and the responsibilities each incurs.
How do they differ?Being self-employed and being a sole trader differ because one refers to a legal status and the other doesn’t. Being self-employed simply describes the kind of work you do stating that you don’t pay tax through PAYE, or work for an employer, whilst being a sole trader is describing a business structure. In certain respects, if you are self-employed, you are essentially running a business in a similar way to a sole trader.
What is considered as self-employment?You will be considered as self-employed if you decide the kind of work you do as well as how and when you do it. According to the GOV.UK website, you are also considered to probably be self-employed if you:
- Hiring other people (which is at your expense specifically) in order to help you or do the work on your behalf
- You provide the main work equipment
- You have multiple customers
- You run the business yourself
- You are the person who is responsible whether the business fails or not
- You sell goods and make a profit
What is a sole trader?If the above characteristics describe the way in which you work, it is likely that you will be considered by the HM Revenue and Customs as a sole trader. As a sole trader, you are considered the only owner of your business, and you do not need to have a director or register with Companies House in order to have one (as you do if you set up a limited company). The status of being a sole trader can be applicable to many different types of business, for example, you could be a writer, a journalist, graphic designer, consultant, plumber, hairdresser, you name it, you can probably register under a sole trader as one! It is less to do with the profession you are in, and more to do with whether or not the job you do meets the self-employment criteria designated by HM Revenue and Customs.
How do I register to become a sole trader?If you are concerned that becoming a sole trader is a lengthy, complicated process fear not – it is in fact very straightforward inexpensive to set up. To register, you will need to let HM Revenue and Customs (HMRC) know as soon as possible. The quickest way to do this is usually by doing it online, and you should remember that registering applies to you even if you are a sole trader on a part-time basis or just casually. You can register on the HMRC website or call the Newly Self-Employed helpline, as well as having the option to print out an HMRC application form to send to them if you so wish.
Why do I need to register as a sole trader?It is important to register as soon as you can as a sole trader as you could end up receiving fines. This could be the equivalent of 100% of tax due, and then the tax on top of that too. As you can see, not registering when you should, may end up becoming a very costly mistake. You will also need to make sure that you have registered as a sole trader by 5th October in your company’s second tax year. This is because failing to fill in your Self Assessment form on time could also lead to a huge fine itself.
To register you will need the following information
- Current address
- Telephone number
- Date of birth
- National Insurance number
- Name of the business
- Type of business