Sole Trader

A sole trader plays an important role in the UK business sector. Most small businesses are set up as either sole trader concerns or partnership firms. A few small businesses, however, opt for incorporation. According to the Small Business Service of the Department of Trade and Industry, the number of business enterprises in UK stood at 4.3 million in 2004-99.3 per cent of which were small enterprises (0 to 49 employees).

The Annual Survey of Small businesses conducted by the Small Business Service provides further insights into the small business sector in UK. The sole trader segment accounted for nearly 70 per cent of the 8,693 small businesses surveyed in 2003. While micro enterprises (1-9 employees) accounted for 25 per cent of the small businesses surveyed, small enterprises (10-49 employees) accounted for 4.5 per cent. The medium enterprises (50-250 employees) accounted for the balance. The extrapolation of the survey results to the UK business sector indicates that the sole trader plays an important role in the UK business.

The survey also showed that over two-thirds of small businesses in UK are engaged in service-oriented businesses such as retailing; hotels and restaurants; transport and communications; and financial services. In the services sector, most small businesses are concentrated in two segments: business services; and wholesale, retail and repairs segment. The remaining small businesses are engaged in construction, production and primary segments such as agriculture.

Most small businesses focus on services for obvious reasons. Capital constraints and long gestation period prevent small businesses, particularly sole traders, from getting into manufacturing. Statistics show that an overwhelming 83.5 per cent of the sole traders take less than six months to get a business up and running. About 87 per cent of the sole traders rely on their own funds in the first twelve months of operations. Most sole traders opt for a short-gestation projects that are operational within a short time.

Most sole traders are individuals with work experience. A typical sole trader is driven by goals such as independence and money. Some sole traders also promote business for making a difference to the society. In the sole trader segment, unemployment is fast-ceasing to be a reason for starting a business. Increasing numbers of sole traders are citing 'attractive business opportunity' as a reason for getting into business.

The social attitude toward a sole trader is also undergoing a change. The society no longer views small business as the last resort of the unemployed. Now a sole trader is viewed as an entrepreneur, seeking to exploit an opportunity. A recent study showed that about 9.5 per cent of the UK citizens were keen to promote a business in the next three years.

A sole trader in UK does not have to comply with as many regulations as an incorporated company. Nonetheless, the sole trader has to comply with regulations relating to taxation, employment, health and safety. Due to lack of employees or low number of employees, most sole traders have trouble in complying with value-added tax, business rates, Pay As You Earn System (PAYE) and National Insurance (NI).

Most sole traders in UK are averse to credit sales due to capital and information constraints, but the situation is changing though. Studies have shown that sole traders are less likely to reduce payment terms and conditions into writing. Sole traders are also reluctant to use regulations for to collect debts. Most sole traders, for instance, do not use 'late payment regulations' for collecting overdue payments. Sole traders are also reluctant to take a customer to court.

The sole trader will continue to play a meaningful role in the UK business sector. Most sole traders are engaged in brick and mortar businesses. With the penetration of Internet rising worldwide, the number of technology businesses in the sole trader segment will increase.