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Last edited 28 Oct 2020
Sole traders in the construction industry
A sole trader is an individual who establishes their own business in which responsibility for the running and operation of the business is theirs alone. The individual may employ others but they remain the sole owner of the business.
This is generally considered to be the simplest way of running a business, with relatively simple accounting processes. However, the individual is personally liable for any debts which may accrue and, for businesses that require a lot of investment, it can prove a risky venture.
Sole traders may have to register for the Construction Industry Scheme (CIS) if they are working in the construction industry as a subcontractor or contractor. The CIS sets out a series of rules for how contractors should make payments to sub-contractors.
Sole traders will need to keep records of the business’s sales and expenses; send an annual Self Assessment tax return; pay income tax on any profits; and acquire Class 2 and Class 4 National Insurance. They may also need to register to pay any VAT.
There are two forms of sole trader:
- Sole proprietor.
- Sole practitioner.
For example, architects can practice as sole traders, either with employed staff or entirely alone. Many architects choose this form of practice, attracted by the freedom of conducting their own business, on their own account. This is considered by some to be one of the hardest forms of practice, as they can feel isolated from fellow professionals.
- Autonomy at work.
- There are few formalities to setting up and operating as a sole trader. This can keep costs down and increase profits.
- The sole trader can make immediate decisions, as there is no need to consult with other parties.
- The business belongs to one individual thus all profits belong to that person.
- High risk.
- Difficult to keep up with changes in practice.
- If the business fails, all debts would have to be met by the trader's personal assets.
- As a small business, sources of finance may be difficult to obtain compared with larger businesses.
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