Sole Traders
Becoming a sole trader is the simplest way to run any business and does not involve paying any registration fees. In addition, keeping records and accounts is pretty straightforward, you have full control over the business and you get to keep all the profits you make. However, you are personally liable for any debts that your business accrues, which can make this a risky option for those businesses that need a lot of investment.
Tax and National Insurance
To become a sole trader you need to register for Self Assessment with HMRC. Records must be kept showing any business income and expense and you must submit a tax return each year. You would be classed as self-employed and so any profits are taxed as income. You will need to pay fixed-rate Class 2 NI contributions regardless of any profits you make, and you will also pay Class 4 NI contributions on any profits.
Liability
As a sole trader you are personally responsible for any debts accrued by your business. This means assets such as your home may be at risk if your business runs into trouble and you cannot pay creditors.