What Is a Sole Trader? A Simple Explanation

Sole Trader in Plain English

A sole trader is a self-employed person who runs their own business. You and your business are legally the same thing — there is no separate company. You keep all the profits (after tax), and you are personally responsible for any debts.

It is the simplest and most common business structure in the UK. Over 3.5 million people operate as sole traders.

How It Works

1. You register with HMRC as self-employed
2. You provide goods or services to clients
3. You keep records of your income and expenses
4. You file a Self Assessment tax return each year
5. You pay income tax and National Insurance on your profits

That is it. No Companies House registration, no annual accounts filing, no directors or shareholders.

Who Can Be a Sole Trader?

Anyone. Freelancers, tradespeople, consultants, tutors, therapists, dog walkers, delivery drivers, artists — if you work for yourself, you can be a sole trader.

Advantages

• Easy to start — register online in minutes
• Simple admin — no company accounts or annual returns
• Privacy — your finances are not publicly available
• Low cost — no formation fees or accountancy overheads
• Full control — every decision is yours

Disadvantages

• Unlimited liability — your personal assets are at risk if the business has debts
• Higher tax at higher incomes — income tax rates can exceed Corporation Tax rates
• Perceived as less established — some clients prefer limited companies

Is It Right for You?

For most people starting out, sole trader is the right choice. It is simple, cheap, and perfectly adequate until your profits grow to the point where a limited company becomes more tax-efficient (usually around £40,000-£50,000 profit).

Get started with Accounted and manage your sole trader finances from day one.

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The simplest way to start a business. Sign up for Accounted and let Penny handle the bookkeeping while you focus on what you do best.