Being a sole trader means there’s no legal distinction between you and your business, so although you’re ‘self-employed,’ you’re not actually employing yourself! But what about other people?
Is a sole trader even allowed to have employees? And if so, do they have to be full-time? We’ll use this article to answer all your questions.
What is a sole trader?
In a nutshell, sole traders are self-employed people who own and run their business without any legal distinction between them and it.
Again, as a sole trader, you are the business, and this has an impact on your responsibilities and the way you pay tax.
The most important thing to understand is that without any kind of legal separation between you and your business, you are personally liable for any debts or other issues that may arise.
Can I employ staff if I’m a sole trader?
Yes! It’s perfectly acceptable to employ people as a sole trader if you could use the extra help. While it’s true that sole traders are solely responsible for their business, there’s no rule saying they have to work alone. The term sole trader just means you’re trading as yourself, under your own name.
Now, when it comes to the length of contract, you can choose to employ people on a permanent, part-time, or freelance basis – but this is where things get a little complicated.
Can a sole trader hire another self-employed person?
Yes. Well, kind of. You can only hire another self-employed person if it’s on an ad hoc (or infrequent) basis, meaning it can’t become a regular thing. They also have to be able to invoice you for their time in the same way that any business would (a potential allowable expense).
The reason you can’t allow this to become a regular thing is because of IR35, an initiative introduced to try and tackle the problem of tax avoidance. Essentially, it helps identify a person’s employment status so as to ensure they’re paying the correct amount of tax and contributions.
A disguised employee is one who has been hired through their own limited company when in reality, the working arrangement is more like permanent employment. This would theoretically benefit the employer, who wouldn’t have to pay National Insurance or other contributions because the ‘self-employed’ person would be off-payroll.
Just make sure that if you do enlist the services of another self-employed person, your relationship with them doesn’t start to resemble that of an employer and an employee.
How outsourcing can help your small business
Quite simply, you may not have the time or energy to handle every small thing involved in running a business. Trying to do so may prevent you from dedicating time to more important things, like finding new clients and building your brand.
There may be tasks which require specialist knowledge you just don’t have, such as bookkeeping, or building a website.
Even though you’re a sole trader, that doesn’t mean you have to go it alone!
How do I register as an employer?
You’ll need to register with HMRC before the first payday, and you can do this up to 4 weeks in advance.
HMRC will send out your Employer Reference number (also known as a PAYE reference), which you’ll need to make submissions to HMRC telling them about your employees’ wages.
It’s your job to deduct income tax and National Insurance from the wages of eligible employees and pay them on to HMRC on their behalf.
What are my obligations as an employer?
As an employer, your main obligations to an employee of yours are to:
- Provide them with a written statement of work (contract)
- Ensure you’re offering them the minimum or living wage, as appropriate
- Check if you need to auto-enrol them into a workplace pension
- Ensure their working environment is safe
- Offer legal working hours
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.
