13 Jan Sole Trader or Self-employed? Does it Affect Your Business Insurance Obligations?
If you work for yourself, rather than being employed, you may be wondering whether you should call yourself a sole trader or self-employed.
What’s the difference between being a sole trader and self-employed?
The terms sole trader and self-employed let others know that you do not work for an employer and relate to your business obligations and business structure; in particular, how you pay tax and national insurance. Unlike a limited company, as a sole trader or self-employed person you do not need to register with Companies House or have a director.
Which title you choose is up to you as there is very little difference in the meaning. However, certain types of workers, such as plumbers, builders and electricians, often prefer being known as a sole trader (meaning they own the business on their own), while others, such as freelance creatives, web designers and personal trainers often use the term self-employed; especially if they don’t work under a business name.
Whatever term you use, as a sole trader or self-employed worker, you will be wholly responsible for all aspects of your work.
All sole traders and self-employed workers will need to inform HMRC about their work status and are obligated to complete an annual Self-Assessment tax return, pay national insurance and tax on profit, and pay VAT if taxable turnover exceeds £85,000.
Do sole traders and self-employed people need business insurance?
Whether you need business insurance will depend on a number of things, including:
- the nature of the work you do
- whether you employ any members of staff
- the value of your business assets
- where you work
- your annual turnover
Below we explain about the types of business insurance available to you and what they do.
Employer’s liability insurance
While most sole traders work alone, you may decide you need some help at some point.
If you employ any staff, even just one part-time worker, you are legally obligated to have employer’s liability insurance to cover them in the event of accident or injury at work (unless they are a labour-only sub-contractor).
The only exception to this is when the staff are immediate family members, but even if that is the case, employer’s liability insurance is a sensible option as it could protect your relative financially if they suffer a serious personal injury at work.
Public liability insurance
Public liability insurance can protect you and your business financially if a claim is made against you by a third party (customers, clients, visitors, members of the public) in respect of financial loss, personal injury or damage to property as a result of your negligence. While it is not a legal requirement, it is a sensible option for many sole traders, especially tradespeople who mostly carry out their work in other people’s homes or on their property.
Professional indemnity insurance
If your work in advising a client causes them financial loss they could make a claim against you or your sole trader business. Professional indemnity insurance can protect you financially in the event of such a claim.
Certain professionals, such as accountants, architects, solicitors etc., must have professional indemnity cover as a legal requirement, but many other types of sole trader or self-employed person, such as fitness trainers, web designers, business consultants and IT specialists for example, could be badly affected if their work caused financial loss to a client.
Product liability insurance
If your business activity includes designing, manufacturing or supplying products or goods, then product liability insurance can protect against compensation claims made against you when a product causes injury or damage as a result of a defect, fault, failure in quality control, or any similar negligence.
Other types of insurance
If you are running your sole-trader/self-employed business from home you will need to tell you home insurance provider to make sure your business assets, such as a PC or any stock you store at home, are covered in the event of loss.
You may also want to consider other types of business insurance such as:
Get the sole-trader or self-employed business insurance package that’s right for you
Talk to Tredstone Risks to day.
Our specialist advisers can help you make sure you have the right business insurance cover for your needs.
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