Why can't we be sole traders?

[Jog On]

Apologies if this has been asked before but I'm meeting other contractors in different industries who operate as sole traders.

Is there any specific reason that we have to be Ltd? I would happily just operate as self employed is there a legal/accounting reason that I can't?

[Ardesco]

If we didn't pay tax the agency would be liable, as a result agency's don't want to work with sole traders because of the risk they incur.

Our Liability would not be limited and if a million pound project went down the can because of something our company did we could get sued for all of our personal assets.

i'm sure there are more reasons too

[Bigbird]

Ardesco got the main one. If you are contracting directly with a client you can be a sole trader without any problems.

If you work through an agency there are special rules which mean the agency is liable for employers NIC even if they pay you gross. There are also rules which would make them deducting this liability from you illegal.

There is of course no reason why you can't work through an agency as an employee of the agency rather than as an independent contractor but yet again the liability for employers NI rears its ugly head so a lot of them won't let you.

[2uk]

The taxation of sole-traders is PAYE but with less NICs I think.

http://www.bytestart.co.uk/content/1...e-trader.shtml

[cailin dana]

No they're not - sole traders are taxed under the SA system.

[Bigbird]

I think 2uk meant that sole traders are taxed on their whole incomes at the same level as PAYE?

That's sort of true on a personal basis, because once again nobody pays any employers NIC on a sole trader.

Income is taxed via SA at the standared personal rates (10%, 22%, 40%) within the same bandings. NIC is paid on 2 levels, Class 2 which is about £3 per week and Class 4 which is basically NIC on profits and charged at 8% on all income over and above the personal allowance level.

Like I said before, the biggest problem is that most contracting work is obtained via agency and the agency rules are quite strict about employment status. Certainly in the field I have most experience in (construction) the agency could take someone on on a CIS card but they still had to pay employers NIC on him! That may be true of other trades as well, in which case the cost to the agency is no different to putting him on their books as PAYE but the accounting is more complicated!

If you contract directly to a client there is no reason why you can't trade as a sole trader and pay your tax & ni via SA providing the client is OK with it.

[TheFaQQer]

If you contract directly to a client there is no reason why you can't trade as a sole trader and pay your tax & ni via SA providing the client is OK with it.

No reason why you couldn't, but the limitation of liability that a Ltd gives you shows why you shouldn't.