{"id":5520,"date":"2018-12-04T10:00:31","date_gmt":"2018-12-04T10:00:31","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=5520"},"modified":"2025-09-10T09:36:01","modified_gmt":"2025-09-10T08:36:01","slug":"sole-trader-guide","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/sole-trader-guide\/","title":{"rendered":"Sole trader guide: How to set up a business and deal with tax"},"content":{"rendered":"
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\n\t\t\t\t\t\tSole trader guide: How to set up a business and deal with tax\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

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The number of people working for themselves continues to rise and becoming a sole trader is the easiest way to do it. There were around 450,000 sole traders in the UK in 2018, according to the Office for National Statistics (ONS). This is fewer than in 2008 when there were 548,000, which largely seems to be due to the increased popularity of other ways of working for yourself such as starting a limited company.<\/p>\n\n\n\n

But sole trader remains an important structure for many people wanting to work for themselves, especially those keen to set up as quickly as possible with the minimum of hassle.<\/p>\n\n\n\n

Read this article to find out what a sole trader is and how to register as one. You’ll also discover whether you should opt to register as a sole trader or a limited company if you want to work for yourself, find advice on tax for sole traders and there are tips on financial planning too.<\/p>\n\n\n\n

What is a sole trader?<\/strong><\/h2>\n\n\n\n

When you start working for yourself, you’re automatically classed as a sole trader, even if you haven’t yet told HMRC.<\/p>\n\n\n\n

The main definition of a sole trader is a self-employed person who is the sole owner of their business.<\/p>\n\n\n\n

Derek Kelly, CEO of SJD Accountancy<\/a>, says: “In the UK, self-employed means you are not an employee of a company and you make your own tax and National Insurance Contributions (NICs), rather than having an employer pay them for you.<\/p>\n\n\n\n

“A sole trader simply describes the way that a self-employed person can structure their business. You register with HMRC and complete your own self-assessment tax return each year. Once your tax return has been processed, HMRC informs you how much you owe from the previous tax year and the payment deadline.”<\/p>\n\n\n\n

Sole trader advantages and disadvantages<\/strong><\/h2>\n\n\n\n

Sole trader is one of the simplest business structures to set up. There are low start-up costs and no registration fee payable to Companies House as there is with a limited company.<\/p>\n\n\n\n

You can change the business structure easily, for example, if you want to expand and become a limited company later.<\/p>\n\n\n\n

As a sole trader, you have no partners to consult with and no need to make joint decisions. This means you keep full control of your business, make all the decisions and keep all the income after tax and expenses.<\/p>\n\n\n\n

Limited companies must publish information about their finances, directors and shareholders every year. Sole traders don’t need to do this \u2013 their information is kept private. However, this can be a disadvantage if you have potential clients who require this level of transparency.<\/p>\n\n\n\n

One of the main disadvantages of being a sole trader is that you have no separate legal status and therefore unlimited liability for anything that goes wrong. For example, if your business gets into debt, your personal capital, including your home, is at risk.<\/p>\n\n\n\n

Nick Johnson, managing partner at solicitors Glaisyers, says the more debts and financial obligations a business holds, the more dangerous this personal liability becomes.<\/p>\n\n\n\n

“For example, if you own and run a caf\u00e9 as a sole trader, and the business goes bust, the lease for the property would be in your name, potentially for many years and you’d be personally liable for paying it,” he says. “If it was a limited company, the lease would go into the company’s name, the company would go into liquidation and the business owner wouldn’t be personally liable. So getting this wrong can ruin people’s lives.”<\/p>\n\n\n\n

Another disadvantage is that sole traders can find it harder to secure funding compared with larger companies, and they may find it more difficult to expand the business.<\/p>\n\n\n\n

Sole traders can also struggle to compete against larger companies with economies of scale. For example, bigger businesses can buy in bulk, have more capacity to deal with ebbs and flows in demand, are less reliant on one person, and can plan succession.<\/p>\n\n\n\n

By contrast, being small means sole traders can be nimble and more responsive \u2013 and your clients always get to deal with the boss.<\/p>\n\n\n\n

\"Woman
Working for yourself can be great but there are challenge to face too<\/figcaption><\/figure>\n\n\n\n

The pros and cons of working for yourself<\/strong><\/h2>\n\n\n\n

Many of the benefits of being a sole trader come from working for yourself. Mike Cherry, national chairman of the National Federation of Self Employed & Small Businesses (FSB), admits the biggest attraction is autonomy.<\/p>\n\n\n\n

He says: “Self-employed people often state that they have a more positive experience of work compared to being an employee, due to the greater flexibility and independence.<\/p>\n\n\n\n

“Self-employment has also opened employment to those who otherwise might not work. It has resulted in [more elderly people being in work] and is helping to unlock some of the potential of female entrepreneurship.”<\/p>\n\n\n\n

Mike says one of the biggest challenges for the self-employed is the uncertainty of a regular income stream. Unlike employees, the self-employed have no definite expectation of future income. One month could yield a substantial income and the following one may result in little or none.<\/p>\n\n\n\n

Research with FSB members shows that 17% say “not getting paid if I fall ill or take time off for personal reasons” was the number one challenge, with 44% listing this in their top three challenges.<\/p>\n\n\n\n

Mike also warns that working for yourself can involve longer hours, with twice the number of self-employed people working over 50 hours a week compared to employees. He also points out that the self-employed face significant challenges in other areas of welfare too. In its current form, Universal Credit does not support the self-employed with their fluctuating incomes adequately.<\/p>\n\n\n\n

On the plus side, National Insurance Contributions for self-employed people on average earnings are marginally lower than for employees.<\/p>\n\n\n\n

How to register as a sole trader<\/strong><\/h2>\n\n\n\n

You need to set up as a sole trader if:<\/p>\n\n\n\n