Sole traders are not being properly recognised for their contribution to the economy, as official statistics may not recognise their status as a business, an expert has said.
Entrepreneur Tina Boden wrote on smallbusiness.co.uk that the 4.5 million trading micro-business owners in the UK may not be a true reflection of the effort and dedication being put into work every day within companies employing zero to nine people.
Ms Boden explained that official figures show one-in-seven of the adult workforce now runs their own business, while the government is hoping a further 500,000 will make the break into trading through their own company.
However, she said there are a number of reasons that the figures may not be accurate, as they may be missing hundreds of thousands of small firms.
She said: “Many micro-businesses fall below the government measuring stick.
"These invisible businesses are not counted in national statistics as a trading company but are making a difference to the owner, the community and the national economy and should be recognised."
Anyone who starts operating as a sole trader must inform HM Revenue and Customs of their business status, regardless of whether self-employment is a main profession or a part-time activity that people maintain alongside a full-time job.
Ms Boden said many people think they must be included in national statistics if they are registered self-employed and pay tax through self-assessment. However, this is not accurate. She added: “Though to some it may not matter, to many it does.”
Not including sole traders in business figures could lead to resentment and fails to recognise the impact the companies have in the British economy. It also presents an inaccurate picture of the health of UK public limited companies.
There are three questions to ask in order to identify whether or not a business is ‘seen’ or ‘invisible’, Ms Boden suggested.
Firstly, does the company employ staff? Secondly, is it a limited company? Finally, is the firm VAT-registered? If the answer is ‘no’ to all three, the business will fall into the ‘invisible’ category.
There are many reasons why the answers would be ‘no’, despite a micro-business being robust and successful. For example, many people choose to work with contractors and freelancers rather than employ workers in full-time roles, and businesses do not need to be VAT-registered until they reach £79,000 turnover a year.
Ms Boden said: “I answer no to all the above questions and therefore I own an ‘invisible business’. And yes this does bother me, I want to be counted – I believe I am making a difference to the national economy, I pay tax and national insurance contributions.”
According to Ms Boden, it is possible there are hundreds of thousands of micro-businesses that do not rank on government statistics.
She recently had a discussion with Matt Wilton of Leeds City Council on the subject of invisible businesses and he explained that there are around 15,000 in his area that are not recognised. Meanwhile, Tim Frenneaux of York, North Yorkshire and East Riding Local Enterprise Partnership believes there are as many as 30,000 in his region. This means there is a total of approximately 45,000 in just this part of the country, which suggests the figure could be huge when taking into account the whole country.
Ms Boden has called on the government to ensure “every micro-business owner is counted”.
She said: “After all if these people were not running their businesses what would they be doing? Claiming unemployment benefit possibly and then they would be a statistic.”
Recently, business secretary Vince Cable confirmed the release of £300 million in funding for the ‘business bank’, which could enable sole traders to expand their operations through providing access to funding.
Sole traders who do not have the time to look after their own books should enlist a firm to carry out accountancy services.