Setting up as a sole trader is a common way for tradies tostart their business.
Our data shows that over 72% of tradies start their businesswith this structure.
Whilst we’ve all heard the term, what does being a soletrader actually mean?
In this guide we’ll answer the question of ‘what is asole trader’ as well as looking at some common questions andmisconceptions.
- Sole trader definition
- Common misconceptions
- Can a sole trader have employees?
- Can a sole trader have a business name?
- Can a sole trader have two ABNs?
- Why use a sole trader structure?
- Sole trader insurance requirements
Sole trader definition
A sole trader is an individual running a business. They own and manage the business, and boththe individual and the business are a single entity.
The Australian Taxation Office (ATO) defines a sole trader as an individual running a business.
“If you operate your business as a sole trader, you arethe only owner and you control and manage the business.”
“You are legally responsible for all aspects of thebusiness. Debts and losses can’t be shared with other individuals.”
Perhaps the easiest way to differentiate a sole trader isthe fact that they share a single Tax File Number (TFN) between themselves andtheir business. They are a singleentity.
Common misconceptions
There a few misconceptions amongst tradies starting a newbusiness.
First up, the term sole trader relates to a specificbusiness structure rather than being a blanket term for any tradie who operateson their own.
For example some tradies operate their business as a Pty Ltdcompany. This may have been recommendedby their accountant for various reasons.
In this case your business is a company, not a sole trader,even if you’re the sole person involved in the business.
Sometimes we hear of tradies who think they don’t need an ABN if their revenue is less than $75k a year.
They are confusing ABN registration with GSTregistration. All businesses will needan ABN regardless of revenue, but you’ll only need to register for GST if youexpect your annual revenue to exceed $75k.
Another misconception is that being a sole trader means youhave no staff. This is not true, as youcan operate as a sole trader whilst also employing staff.
We’ll cover the sole traders with employees in a separatesection below.
Can a sole trader have employees?
Although it’s not particularly common, a sole trader canhave employees.
We strongly recommend speaking with your accountant forfurther advice in this area, but you’ll most likely find that your accountantwill recommend switching to a company or trust structure before you take onemployees.
More information for sole traders employing staff can be found here.
Can a sole trader have a business name?
Absolutely. Being asole trader doesn’t mean you have to operate under your own personal name.
The entity will always be your personal name, but you can still register a business name to use.
In this case your ABN would still be in your personal name,but with a business name attached.
On official documents, such as bank statements for example,both your personal name and business name would appear as follows:
John Smith trading as JS Elite Carpentry.
This would typically be abbreviated as follows:
John Smith t/as JS Elite Carpentry.
A sole trader can also have multiple business names if youoperate multiple businesses. This leadsus into the next question…
Can a sole trader have two ABNs?
A sole trader can only have a single ABN.
However, a sole trader can operate multiple businesses, withmultiple business names, under a single ABN.
For example if you operated as a carpenter and a handyman, but for whatever reason wanted each business to have its own unique identity, you could do exactly that with a single ABN.
You might have two businesses as follows, for example:
John Smith t/as JS Elite Carpentry
and
John Smith t/as JS Handyman Services
Both would share the same ABN, but still have their ownnames.
In your marketing you would generally only use the businessname rather than having your name and the “t/as” tacked onto the front.
If you absolutely want each business to have its own ABN,the only option is to have one or both businesses setup as a company. As each company is a separate entity, itwould have its own ABN.
Why use a sole trader structure?
For a anyone starting a trade business, setting up as a sole trader will be the cheapest, fastest and easiest option.
It’s a DIY option that can cost virtually nothing to setup. The only cost will be if you wish to registera business name, and even that is only around $30.
Registering your ABN and registering for GST is free is you go directly through the Government’s online service.
Our data shows that 72% of tradies start their business as a sole trader, making it by far the most common option.
This isn’t to say being a sole trader is going to be the best option however. Whilst it is cheap and easy, there are also some important limitation of this structure.
We have a comprehensive guide on sole trader v company that goes in greater detail on the pros and cons of each option.
We also strongly recommend speaking with your accountantabout the best structure for your individual needs and circ*mstances.
Sole trader insurance requirements
It would be remiss of us not to look at the businessinsurance side of what it means to be a sole trader.
As a sole trader your business insurance requirements are nodifferent to that of a company or trust.
Your sole trader insurance policy will be in your personal name, with the option to add any business names you have.
It’s important to have your personal name on the policy rather than just your business name, as your personal name is the actual entity being insured.
For information specific to public liability, visit our sole trader public liability insurance guide.
More information
For more information about what a sole trader is, or whetheror not it’s the right structure for your trade business, we recommend speakingwith your accountant.
Whilst any accountant will be able to help you, we recommend using a tradie accountant who will have more knowledge about your specific industry and what works best for it.
