{"id":8887,"date":"2021-08-01T12:01:07","date_gmt":"2021-08-01T11:01:07","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=8887"},"modified":"2024-01-30T13:59:41","modified_gmt":"2024-01-30T13:59:41","slug":"self-employed-sole-trader","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/self-employed-sole-trader\/","title":{"rendered":"Self-employed and sole trader \u2013 are they the same thing?"},"content":{"rendered":"

At first glance, many people will wonder if there is any difference between self-employed and sole trader.<\/p>\n

In fact, although these terms are sometimes used interchangeably, they have entirely different legal definitions. In this blog, we will consider the meanings of employed vs sole trader and the differences between them.<\/p>\n

What is a sole trader?<\/h3>\n

The term \u201csole trader\u201d refers to the type of business structure.<\/p>\n

A sole trader carries out business as an individual. This differs from a limited company, which is an incorporated business entity. It also differs from a partnership which, although not an incorporated structure, involves at least two people working together in business.<\/p>\n Our Fully Inclusive Package - a great way to form a limited company<\/span><\/a>\n \n Sole trader or limited company \u2013 which is better for me?<\/span><\/a>\n \n How is a company formed?<\/span><\/a>\n \n

Although a sole trader can use a business name, there is no legal distinction between the individual and their business. As a result, sole traders are personally liable for all of their business debts. This is unlike the case of a limited company, where liability for the debts of the business is limited to the value of shares and investments in the company.<\/p>\n

When considering the terms self-employed and sole trader, it\u2019s important to remember that the former term refers to the business structure, as opposed to the way in which someone works, which is covered by the latter term.<\/p>\n

What happens if a sole trader forms a company?<\/h4>\n

Sometimes a sole trader will decide to change their business structure by registering a limited company.<\/p>\n

If they do this, they will lose their status as a sole trader, but they might still be self-employed.<\/p>\n

What does it mean to be self-employed?<\/h3>\n

As we have discussed, when considering the terms self-employed and sole trader, we need to remember that sole trader just refers to the chosen business structure. Self-employed, however, refers to the way in which an individual works for the purposes of tax and employment law.<\/p>\n

If someone does not have a contract of employment and does not receive their salary through PAYE, they will usually be classed as self-employed and will need to pay their own tax through Self Assessment. They will not have employment law rights if they are classified as self-employed.<\/p>\n

\n \n \"FREE\n \"FREE\n <\/a>\n <\/div>\n \n

An individual may be classed as self-employed for tax purposes and\/or employment law purposes. Let\u2019s take a look at how to assess whether someone is classed as self-employed for these two purposes:<\/p>\n

Tax<\/h4>\n

An individual will generally be considered as self-employed for tax purposes if most of the following criteria apply to them:<\/p>\n