Many people out there hold an Operator’s Licence as a sole trader. However, I suspect many of them are continually advised by their accountants to incorporate.
There are a number of good reasons for doing this.
For example, the disadvantages of being a sole trader include:
- You’re personally liable for all business debts and legal obligations. This means your home is at risk and you might have to sell it to pay off the business debts.
- As a sole trader, it can be more difficult to access significant capital or business loans because lenders may be hesitant to provide funds.
- Your business’s continuity may be at risk because it’s heavily dependent on your own individual health and well-being. If you become incapacitated, the business may struggle to continue operating.
- The opportunities for tax planning are limited for a sole trader because all the profits a sole trader generates are liable to Income Tax. If a sole trader makes a significant profit, they’ll pay a higher tax than a limited company. A company owner can withdraw these profits via dividends, which are generally taxed at a lower rate than Income Tax.
Issues specific to Operator Licensing
- You can’t simply sell the business with the Operator’s Licence. Any prospective buyer would have to apply for their own Operator’s Licence.
- If someone wants to ‘join’ the business as a co-owner, a limited company or partnership would need to be formed. This would require a new application for an Operator’s Licence. With a preexisting limited company, you would simply need to notify the TC of the changes in the directors or shareholders.
Other hidden dangers
However, there are further, hidden dangers which might not appear obvious to everyone.
If for instance, as a sole trader, you take on a new driver and the following scenario occurs:
- He’s recommended to you by one of your current drivers.
- You’re aware he recently drove for a competitor.
- He tells you he has an HGV licence, he shows you his photocard driving licence which appears to show the correct entitlement.
- He says he’ll provide you with the details to do an online driving licence check later, but you forget get this.
- You trust the person due to the recommendation and allow him to drive.
- You let him drive for a week.
He gets stopped by the Police and it turns out he’s been disqualified.
You permitted him to drive on each and every day.
- You didn’t have an appropriate system in place to check driving licences.
- Your insurance is now likely to be invalid for each and every occasion he drove.
- Fortunately, there were no accidents, so you’re not personally liable for anything financial.
- However, you’ve now committed multiple criminal offences for each day he drove:
o Permitting someone to drive a vehicle otherwise than in accordance with a licence
o Using a vehicle without insurance
- The insurance offences are 6-8 penalty points for each day he drove.
- You’re now facing up to 40 points on your own licence for the 5 days you allowed him to drive.
- You’re going to lose your driving licence, unless you can run an exceptional hardship argument.
- This will be for a minimum of 6 months.
- How will you get to work each day? The logistical difficulties this could impose are enormous.
- Even if you are successful with an exceptional hardship argument, you’re still facing the possibility that insurance is prohibitively expensive due to the fact you have 40 points on your licence.
Of course, if you had completed a proper licence check, you’d have known the new driver couldn’t drive and you wouldn’t have allowed him on the road.
But if you had incorporated, the risk to your own driving licence is unlikely to be present, because a limited company cannot receive penalty points.
This situation highlights both the importance of completing online driving licence checks but also the personal dangers if you’re a sole trader.
Jared Dunbar can help uncover the hidden dangers and advise you on best practices for your transport business. Contact him today.