What is a sole trader? Meaning and examples
Understand what a sole trader is, see everyday UK examples, and learn about employing staff, registering with HMRC and choosing a business name.
In one sentence
A sole trader is a self-employed person who owns and runs a business as an individual, keeps the profits after tax and is personally liable for business debts.
Quick answer
- A sole trader and their business are the same legal person, with personal responsibility for business debts.
- Examples include plumbers, hairdressers, freelance designers, cleaners and private tutors.
- Sole traders can employ staff and normally register for Self Assessment when annual gross trading income exceeds £1,000.
What is a sole trader?
A sole trader is a self-employed person who owns and runs their business as an individual. There is no separate legal entity. The owner keeps the profits after tax and is personally liable for business debts.
This is called unlimited liability. If the business cannot pay its debts, your personal assets may be at risk.
"Sole trader company" is a misnomer. A sole trader is not a company. Companies register at Companies House and have their own legal identity. Registering with HMRC as a sole trader does not create a company.
8 sole trader examples
These are examples of sole trader businesses when one person owns and runs them as an individual. The same trades can also operate through limited companies. The work alone does not determine the legal structure.
1. Plumber or electrician
Takes repair and installation jobs directly from customers and invoices for the work.
2. Hairdresser
Runs appointments from a salon chair, home studio or clients' homes.
3. Freelance designer or copywriter
Agrees projects with clients and invoices for design work or written content.
4. Personal trainer
Provides individual training sessions or group classes and charges clients directly.
5. Cleaner
Provides regular or one-off cleaning for homes or business premises.
6. Market stall or online seller
Buys or makes goods and sells them through a stall or an online shop.
7. Driving instructor
Provides driving lessons and collects payment from learners.
8. Private tutor
Teaches pupils individually or in small groups and invoices parents or students.
Can a sole trader have employees?
Yes. "Sole" refers to the owner, not the number of people working in the business. You can employ staff while remaining a sole trader.
- Register as an employer with HMRC before the first payday.
- Run payroll through PAYE. Send Real Time Information (RTI) reports on or before payday.
- Check each employee's right to work before they start.
- Meet workplace pension auto-enrolment duties, including assessing staff and enrolling eligible workers.
- Arrange employers' liability insurance, which is required in most cases.
Our payroll service can help with PAYE and reporting.
Registering as a sole trader and paying tax
Tell HMRC by registering for Self Assessment by 5 October after the tax year you started trading ends. The UK tax year runs from 6 April to 5 April. If you start in 2026/27 and need to register, the deadline is 5 October 2027.
The trading allowance is £1,000 per tax year. If you qualify and your total gross trading income is £1,000 or less, you normally need no registration for trading income alone. This is income before expenses, not profit. Exceptions apply, and other income or circumstances may require registration. Keep records even below the threshold.
You pay Income Tax on taxable profits through Self Assessment. Allowable business expenses reduce your profit. You normally claim either actual expenses or the trading allowance, rather than both against the same income.
For 2026/27, Class 4 National Insurance is 6% on profits over £12,570 up to £50,270. It is 2% on profits above £50,270.
VAT registration is compulsory when taxable turnover exceeds £90,000 in a rolling 12 months. You must also register if you expect to exceed £90,000 in the next 30 days alone. Turnover is sales, not profit.
Making Tax Digital for Income Tax applies from April 2026 if qualifying income exceeds £50,000. The threshold falls to over £30,000 from April 2027 and over £20,000 from April 2028. Qualifying income is combined gross self-employment and property income before expenses. HMRC uses an earlier tax return to assess when you join. Exemptions can apply.
Read our guides to registering for Self Assessment, MTD for sole traders and sole trader allowable expenses.
Official guidance: National Insurance rates, VAT registration and MTD start dates.
Can a sole trader use a business name?
You can trade under your own name or choose a business name. Neither needs registering with Companies House. A trading name does not change your personal liability.
Your name cannot include "limited", "Ltd", "LLP" or "plc", or their full equivalents. Some sensitive words need permission. It cannot be offensive or the same as an existing trade mark. Avoid names that are too similar to a protected trade mark too.
Put your own name and any trading name on invoices and official letters.
Sole trader pros and cons
| Area | Advantage | Drawback |
|---|---|---|
| Simplicity | You control decisions and have fewer company filing duties. | You remain responsible for records, tax returns and any employer duties. |
| Privacy of accounts | You do not publish accounts at Companies House. | You still report income to HMRC and keep supporting records. |
| Low setup cost | There is no company incorporation process. | Insurance, software and professional support may still be needed. |
| Liability | You own the business and its profits after tax. | Unlimited liability puts personal assets at risk from business debts. |
| Tax as profits grow | Profits are reported through your personal Self Assessment. | Personal tax rates apply, even if you leave profits in the business. |
| Perception | You can offer a direct relationship with the owner. | Some customers or contracts require a limited company. |
Sole trader or limited company?
Review your structure as profits, risks or client requirements change. A limited company brings a separate legal identity and more administration. Compare the full tax position, how much profit you need personally and any borrowing or personal guarantees. There is no single profit level that makes incorporation right for everyone.
Compare sole trader vs limited company or read about switching from sole trader to limited company.
Discuss your next steps
Book a 30-minute call. We'll confirm whether we're a fit, and if we are, we'll tell you exactly what the next step looks like.
Frequently asked questions
What is a sole trader company?
The phrase is a misnomer. A sole trader is an individual running a business, not a company. A company is a separate legal entity registered at Companies House.
Can a sole trader have employees?
Yes. Sole trader describes ownership, not staff numbers. Register as an employer with HMRC before the first payday, run PAYE payroll with RTI reporting, check right to work, meet workplace pension duties and arrange employers’ liability insurance in most cases.
Does a sole trader need to register?
Normally, you must register for Self Assessment if gross trading income exceeds £1,000 in a tax year. Tell HMRC by 5 October after that tax year ends. If eligible for the trading allowance, income up to £1,000 needs no registration for trading income alone. Other reasons can still require registration.
Can a sole trader use a business name?
Yes. You can trade under your own name or a business name. Naming restrictions apply, including a ban on limited, Ltd, LLP and plc. Some sensitive words need permission. You do not register a sole trader business name at Companies House.
When should a sole trader become a limited company?
Review the structure when business risks, profits, borrowing needs or client requirements change. Consider liability, administration, how much profit you withdraw and the full tax position. There is no single profit level at which incorporation suits everyone.
Key terms
- Sole trader
- A self-employed individual who owns and runs a business without creating a separate legal entity.
- Unlimited liability
- Personal responsibility for all business debts. Personal assets may be used to repay them.
- Trading name
- A business name used by a sole trader instead of their own name. It does not create a separate legal entity.
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