What is a sole trader?

Operating as a sole trader is the simplest and most common way for an individual to run a business in the UK. Many people who start freelancing, contracting, or running a small business default to this structure without fully understanding what it means in legal and financial terms — or how it compares to the alternatives available to them.

A sole trader is a self-employed individual who owns and runs a business in their own name, without forming a separate legal entity. There is no legal distinction between the person and the business — the sole trader is personally responsible for all business debts, contracts, and liabilities. Sole traders register with HMRC for Self Assessment and pay Income Tax and National Insurance on their business profits through the annual tax return process. There is no requirement to register with Companies House.

The simplicity of the sole trader structure is its main advantage, but the absence of limited liability means personal assets are at risk if the business incurs debts or faces legal action. Whether sole trader is the right structure depends on the nature of your business. Our guide to choosing a business structure sets out the key differences between sole trader and limited company for UK founders.