What is the difference between self employed and sole trader

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Never forget your insurance, ever again! Insurance renewal reminder service. About constructaquote. Current vacancies. Sole trader refers to the business structure and not the individual per se. You can be self employed while in a partnership. You can be self employed as an independent contractor. You can even be self employed and run your business in a company structure.

So, as you can see, being self employed has nothing to do with the business structure or lack thereof that you operate in. Companies are also subject to GST.

One key difference in taxation is evident in how capital gains tax is treated. This also applies to self employed individuals who operate as sole traders. But, on the plus side, you are entitled to certain concessions if your company is a small business. Once again, it all boils down to the business structure. The structure of a sole trader does not set out any clear division between what constitutes business vs. So, any personal assets you have in your name can be used to settle debts incurred by your business.

A company is a legal entity that can own assets, sue, and be sued. Your assets may be sold to help settle these debts. Anyone self-employed is responsible for any profits they generate or unfortunately for any losses they make. And, unlike limited companies, their personal liability is unrestricted. That can be significant if things go pear-shaped and debts mount up. This term is used widely in the creative industries, so you get a lot of freelance copywriters, web designers, photographers — that sort of thing.

Freelancers generally hire out their services to a number of different clients for a set fee or by the hour.

They often work on single pieces of work or on short-term projects. What all freelancers must do is inform HMRC of their status. Whereas employees pay tax through PAYE deducted at source, the system for anyone self-employed is different. They must submit an annual self-assessment tax return and pay income tax and Class 2 and 4 National Insurance contributions.

That involves keeping scrupulous accounts, including dated invoices and receipts for any expenses. Sole traders are very similar to freelancers in that both are self-employed and pay tax by self-assessment. Setting up as a sole trader is the simplest way of structuring your business and getting it off the ground. Because that involves naming a director, registering with Companies House, and submitting annual accounts. Although to confuse matters, both freelancers and sole traders can also operate as limited companies.

Limited companies also pay tax differently because, even if the company consists of just one person, that person is effectively treated as an employee. So, while very similar to freelancers, sole traders are slightly set apart because they tend to work in a somewhat different way. Whereas freelancers usually sell a skill or service, any type of small business can operate as a sole trader, be that retail, hairdressing, plumbing or whatever.

Sole traders can even have employees. So, the difference between freelance, sole trader and self-employed in business terms really isn't very great. Neither is there much of a difference in the type of everyday risks they face.