A sole trader is a self-employed person who owns their business personally. This guide covers how it works, the tax you pay, and the trade-off of unlimited liability.
Published July 2026 · Updated July 2026
A sole trader is an individual running a business as themselves. There is no legal separation between you and the business: its income is your income, and its debts are your debts.
You register as self employed with HMRC, keep records of income and expenses, and report through Self Assessment each year, paying Income Tax and National Insurance on your profits.
The main trade off is that your liability is unlimited. If the business owes money, you owe it personally, which can put personal assets at risk. This is the key difference from a limited company.
Many people start as a sole trader for simplicity and switch to a limited company as profits grow, for liability protection and potential tax efficiency.
Yes, register for Self Assessment with HMRC once your self employed income passes £1,000 in a tax year.
Yes. Being a sole trader describes your ownership structure, not whether you can hire people.
Sole trader is the most common form of self employment. All sole traders are self employed, but some self employed people use other structures.
Source: GOV.UK ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.