Increasing numbers of people are going solo when setting up a small business, turning us into a nation of solopreneurs rather than entrepreneurs.
There are 5.4 million businesses in the UK and in 2015 4.1 million were non-employing firms, according to the Office for National Statistics.
This means 76 per cent of businesses don’t employ any staff and are just run by the founder.
There are a number of advantages and disadvantages to going it alone.
Being a solopreneur is different to an entrepreneur. A solopreneur has an idea and works on achieving it with their own skills, while an entrepreneur will take an idea and find the talent and the resources to help build it.
For example, a solopreneur may be someone who makes crafts at home and sells them on but never builds an empire, while an entrepreneur is one who takes those items, often made by others on their behalf, to the masses.
One of our clients, Stvdio5, is a good example of a solopreneur. Owner Antonio Pisanelli makes vegan beauty products from a studio in his own flat. He has no staff or business partners and makes all the products and handles all the sales and marketing by himself.
You are in control of all the decisions as a solopreneur and don’t have to worry about recruitment or management or office politics. But it can be lonely on your own with a lack of colleagues and no-one to bounce ideas off. You may also find yourself having to balance working for several different people at the same time.
Many solopreneurs get around the loneliness by working in coffee shops or joining co-working hubs where several startups rent desk space in the same location.
Aside from the unique responsibilities and working environment that comes with being a solopreneur, you also have to consider the way your business is structured.
The sole trader or self-employed structure is designed for business models with only one person. There are no company incorporation costs and you are in total control from day one.
However, being a sole trader means there is no distinction between the assets of the business and its owner so, if the business fails, your personal wealth will be used to clear business debt. Equally, if the risk of litigation is significant within your business, your customers also have recourse against you personally.
Sole traders may end up paying more tax, depending how much they earn. You will need to pay income tax on earnings at 20 per cent for basic rate taxpayers earning up to £31,865 for this tax year and 40 per cent for higher rate earners on £31,865 to £150,000.
Once you start earning more than £150,000 there is an additional rate of 45 per cent.
Forming a limited company can be a more tax-efficient option, especially if your earnings are within the higher tax bracket.
Sole traders are self-employed and pay income tax on their earnings (less their tax deductible costs), at normal personal income tax levels. By incorporating, a small business owner is able to get their full tax free personal allowance (as if they were self-employed) as well as benefit from tax efficient dividend distributions from the company. Rather than income tax, companies must pay corporation tax on any profits, currently 20 per cent for small firms.
Forming a company can portray more professionalism and your assets are separated from your personal wealth.
However, aside from a self-assessment you will also need to complete an annual return as well as accounts.
It can also be harder to access your money as it technically belongs to the company, meaning you could face a big tax bill by taking too much at a time.
There are other factors to consider, such as whether to charge VAT, some will need to do so if they earn more than around £80,000 a year.
You should also make sure you are making the most of any allowances that can reduce your tax bill.