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Statista. (2025, July). Number of self-employed workers in the United Kingdom from 1st quarter 2000 to 1st quarter 2025.
This article includes tips, suggestions, and general information. We recommend that you always do your own research and consider getting independent tax, financial, and legal advice before making any important decision.
A sole trader is an individual who is self-employed and operates their business independently. It’s the simplest business structure, with fewer admin requirements, but it also means personal financial responsibility.
In short, a sole trader is a business owner who works for themselves, keeps all the profits, but also covers any losses or debts.
During Q1 2025, Statista reported around 4 million self-employed UK workers, showing that sole trading is a popular choice.1
Before registering as a sole trader with HMRC, it’s important to understand what the role involves. This guide explains the benefits, risks, and how sole trading compares to running a limited company.
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Sole trading offers a simple and flexible way to run a business, making it a popular choice for many entrepreneurs. However, like any business, it comes with trade-offs and challenges.
The flexibility of sole trading can make it attractive to new entrepreneurs, freelancers, or those starting a small online business who want to avoid complex setup steps.
While the benefits are clear, the drawbacks can have serious financial and legal effects. These limitations become more important as a business grows and takes on more risk management.
Tip: Opening a PayPal Business account can help sole traders automatically track transaction details, making it easy to separate business and personal expenses. Plus, PayPal Open offers multiple payment methods so that small businesses can complete more transactions.
Registering as a sole trader in the UK is straightforward, but timing matters. HMRC requires registration as soon as earnings from self-employment exceed £1,000 in a tax year.
The registration process involves four key elements:
To learn more about the registration process, visit the UK Government website.
The main difference between a sole trader and a limited company is how the business is structured and managed. This affects liability, taxes, and decision-making.
An advantage of sole trading is that owners maintain full control and avoid extra paperwork required for limited companies, such as annual accounts and confirmation statements filed with Companies House.
Here’s an overview of common UK business structures:
Business structure | Description |
|---|---|
Sole trader | One person runs and owns the business, with full personal liability. |
Partnership | Two or more people share responsibility and profits. |
Limited partnership (LP) | Includes at least one general partner (with unlimited liability) and one limited partner (whose liability is capped). |
Limited liability partnership (LLP) | All partners have limited liability and can manage the business. |
Private limited company (Ltd) | A separate legal entity from its owners; liability is limited to shareholders’ investment. |
Public limited company (PLC) | Can sell shares to the public and has stricter requirements. |
Co-operative (Co-op) | Owned and run by its members (e.g., workers or consumers), who share the profits. |
Charitable incorporated organisation (CIO) | A structure specifically for charities. |
Sole traders work across every industry in the UK, from traditional trades to modern digital services. They share common traits: they work for themselves, keep all profits after tax, and take full responsibility for business decisions.
Here are some examples of sole traders:
Tradespeople | Freelancers | Gig economy workers |
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Sole traders must keep records of all business income and expenses for a minimum of five years.
Examples of tax requirements for sole traders:
Sole traders pay Income Tax on profits above the personal allowance. Tax rates depend on total income.2
Sole traders have to pay National Insurance contributions. The type and amount depend on yearly profits.3
Value Added Tax (VAT) is added to the price of goods and services. Sole traders must register for VAT if their seasonal performance exceeds the threshold, requiring them to charge VAT to customers on behalf of the government.4
Managing finances carefully is key for sole traders. Keeping records and tracking payments can help avoid surprises and support long-term business stability.
Starting as a sole trader gives you full control and flexibility over your business. PayPal helps sole traders grow their business, reducing the administrative burden and providing solutions that scale with the company.
Learn more about opening a PayPal Business account to support your sole trading journey and help simplify your path to successful self-employment.