Are There Any Disadvantages of Being a Sole Trader?

Short answer: Yes. But let me explain.

“If you want to go fast, go alone. If you want to go far, go together.” – African Proverb.

I started out as a sole trader. Just me, my laptop, a basic invoice template, and a wildly overconfident sense that I could do everything myself. And to be fair, for a while, I did.

No red tape. No board meetings. No confusing shareholder documents. Just me and my work. That freedom felt incredible.

But over time, the cracks began to show. And I want to walk you through what I learned — so you can make smart decisions without stepping on the same rakes I did.

1. You're on the hook — personally.

Let’s talk about liability — the part no one likes to think about.

When you’re a sole trader, there’s no legal line between you and your business. That means if your business ends up owing someone money, it's you who owes it. Not some separate company entity. You.

Take Sarah, for example. She runs a small home baking business from her kitchen in Canterbury. Things were going well — until one month, a large wedding order went out, and several guests reported food poisoning. A full investigation followed. She hadn’t kept proper records of her ingredients, and she didn’t have product liability insurance (it’s not mandatory unless you’re selling to certain vendors). She ended up with legal costs and claims from unhappy customers.

The worst part? She had to use her personal savings and take out a second credit card just to stay afloat. Because legally, the buck stopped with her.

Moral of the story: if something goes wrong and you’re a sole trader, it’s not just your business at risk — it’s your home, your car, your life savings. It's worth putting safeguards in place from the start.

2. Raising money is like squeezing blood from a stone.

Need funding to grow? Want a shiny new website or new equipment?

Yeah... good luck with that.

Banks often see sole traders as high-risk. I remember applying for a small loan to expand and being asked for everything. Business plan, personal bank statements, cash flow forecasts — and still got rejected.

With no limited liability and no formal structure, lenders and investors can get nervous. Compare that to a limited company with its neatly defined legal boundaries, and suddenly sole traders feel like the rough-and-ready cousin no one wants to lend money to.

3. Tax can feel like a puzzle with missing pieces.

At first, I loved the simplicity. You earn. You deduct your business expenses. You pay tax on what’s left.

But here’s the thing — as your income grows, being a sole trader can be less tax efficient than trading through a limited company.

Sole traders pay income tax on all profits. So if you earn £50,000, you’re taxed as an individual, and it can hit hard. Limited companies? They pay corporation tax — which is usually lower — and they can mix salary with dividends to save more.

I switched to a limited company the moment I realised how much more control I’d have over my tax planning.

4. You’re the entire business — and that’s exhausting.

Ever tried taking a week off when you’re the only one who does everything? Emails pile up. Invoices go unpaid. Deadlines loom.

Sole traders often wear all the hats — marketing, admin, finance, delivery, cleaning the coffee mug...

At one point, I realised I hadn't taken a proper day off in six months. And not because I loved the hustle — I just didn’t have backup.

If you get ill, burn out, or need time away, the business pauses. And that’s risky.

5. Some clients prefer “Ltd.”

It surprised me how often this came up. A few large companies wouldn’t even entertain working with me unless I had a limited company.

Why? It’s a trust thing. To them, “Ltd.” sounds established and professional. It’s perception, but it matters.

And yes, I’d deliver the same quality service either way, but I lost jobs just because of the label.

So, should you avoid being a sole trader?

Not necessarily.

For many, being a sole trader is the perfect way to start. It’s low-cost. Low-hassle. And it gives you room to test the waters.

But you need to go in with your eyes open. Protect yourself. Get insured. Understand your tax obligations. And have a plan for when you outgrow the structure — because that might happen faster than you think.

If I were starting again? I’d probably still begin as a sole trader. But I’d be better prepared. I’d think of it as a starting point — not a permanent identity.

A few tips before you go:

• Sort insurance early. Even a basic public liability policy can save your neck.

• Separate your finances. Use a business bank account, even if you don’t have to. It keeps things clean.

• Track everything. Use simple software or a spreadsheet. Your future self (and your accountant) will thank you.

• Talk to a pro. A 30-minute chat with an accountant can save you hours of stress and possibly thousands in tax.

And finally — don’t be afraid to grow. When the time feels right, explore your options. Being a sole trader is a great launch pad, but it doesn’t have to be the final destination.

If you’re unsure about whether staying a sole trader is right for you, feel free to reach out. I’ve been there. I get it. And I’m always happy to share what I’ve learned — the hard way.

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