Can a sole trader employ staff in 2022?

The short answer is yes!

As a sole trader you run and own your own business. This means you keep the profits once you have paid tax on them and you’re personally responsible for any losses the company makes. As long as the sole trader remains the sole owner of the business, you don’t need to set up a limited company and are able to employ people within the business.

A couple of things important to know about employing people:

1) You have to make HMRC aware and register as an employer, in the same way a limited company would. You can find the HMRC website here.

2) You will need to register for PAYE, before any salaries are paid, it’ll be the sole traders responsibility to collect tax and NI contributions on the employees behalf and then pay it to HMRC.

You can administer this yourself using software such as Xero, Quickbooks, and FreeAgent, or you can get a bookkeeper or accountant to do this for you.

3) Think carefully about employment contracts. The contract is there to protect you and the employee in the event of a dispute or when they want to leave or you want to adjust their role or change any terms and conditions.  By having a contract that makes everything clear at the start you can save many issues later on. Typical areas the contract will cover are annual leave allowance, rules and terms, sick pay and notice of termination.  If you would like some help and support with this or a referral to a HR company we would recommend please contact us.

So as a sole trader, you can employ people. That said, as your company grows there are reasons why you might benefit from becoming a limited company such as tax benefits. Limited companies are only taxed on their profits, which is usually at a rate of 19%, and are not subject to the higher tax rate of 40%-50%, unlike individuals or sole traders. Along with this there are other benefits such as using your own car instead of a company vehicle, it means that you can charge mileage to the company, you can make the costs tax deductible! There is other financial security in that as the owner of a limited company you don’t face personal liability as all acts are undertaken as agents for the company, and any shareholders will only be liable for any debt that the company incurs. This will help with the mental health strains of running a business and will help you become more focused and take larger risks which could mean the difference between failure or business success.

There’s no one size fits all solution to this – so if you want to discuss how you are going to grow your company and get a clear plan in place that’s right for you contact us.