What is a sole trader? How it works and how to register

A sole trader is a type of business: you work for yourself, you are classed as self-employed and you make all the business decisions. GOV.UK describes it as the simplest business structure to set up and keep records for, and most people use it when they first start out.

The business is not a separate legal entity. You and the business are one and the same, which is why you keep all the profits after paying tax and why you are personally responsible for everything the business owes. You can also be a sole trader alongside a job, because GOV.UK says you can be employed and self-employed at the same time.

“Sole” does not mean you must work alone. A sole trader can take on employees, and GOV.UK lists the extra duties that follow, such as running payroll, paying employers’ National Insurance and providing workplace pensions to eligible staff.

You are likely to be trading if you sell regularly to make a profit, make items to sell for profit, earn commission or are paid for a service you provide. GOV.UK says you probably run a business if you take responsibility for its success or failure, have several customers at the same time and decide how, where and when you work.

Occasional selling is different. If you only sell the odd item through an auction website, check with HMRC whether that income needs reporting. GOV.UK advises contacting HMRC if you are not sure whether you are trading.

No, you can start trading straight away without registering, but you must register for Self Assessment as a sole trader if you earn more than £1,000 in a tax year. A tax year runs from 6 April to 5 April, and you can choose to register earlier than you have to.

The deadline for telling HMRC is 5 October after the end of the tax year in which you started. GOV.UK says that for the 2025 to 2026 tax year the date was 5 October 2026, and that telling HMRC after the date could mean a penalty. Our guide to UK tax year dates covers the rest of the calendar.

You register by telling HMRC through the online Self Assessment service on GOV.UK, and registering costs nothing. After you register, HMRC issues you a Unique Taxpayer Reference, explained in our guide to the UTR number.

GOV.UK sets out the order for a new sole trader:

• Check that being a sole trader is right for you.
• Choose your business name. You can use your own name or a trading name.
• Work out which records you need to keep.
• Register for Self Assessment.
• Check which other taxes may apply, such as VAT.
• Plan for your tax bill, which may include Income Tax and National Insurance.

Rules depend on what you do, too. Depending on your trade you may also need licences or permits, business insurance or a criminal record check.

A sole trader pays Income Tax and National Insurance on their profits through a Self Assessment tax return, and does not pay Corporation Tax. HMRC works out what you owe from the return you submit, and you register for VAT if you meet the requirements.

Self Assessment payment dates matter for cash flow. GOV.UK says the tax is due by 11:59pm on 31 January, with a second deadline on 31 July if you make payments on account, which are payments towards your next bill. Our guide to payments on account explains how they work.

Making Tax Digital for Income Tax applies from 6 April 2026 if your qualifying income from self-employment and property is over £50,000. Qualifying income is your turnover before expenses. If you are below that, GOV.UK tells you to check whether and when it will apply to you, and our Making Tax Digital guide covers the basics.

Unlimited liability means that you are personally responsible for all the debts of the business. If something goes wrong, GOV.UK says you will have less protection than the owner of a limited company, although business insurance may give you more.

Our comparison of sole trader vs limited company sets the two structures side by side.

You must keep records of your business income and expenses for your tax return, and keep them for at least 5 years after the 31 January submission deadline of the relevant tax year. From the 2024 to 2025 tax year, GOV.UK says cash basis is the default accounting method, and you must opt out if you want traditional accounting or cannot use cash basis.

On your name, you can trade under your own name or choose a trading name. GOV.UK’s invoicing guidance says an invoice from a sole trader should show your name and any business name, plus an address for legal documents.

Yes, sole traders can borrow for their business, subject to status and lender criteria. Lenders assess a sole trader on their personal credit file as well as the business, because there is no separate company to assess.

Regulation differs from lending to a limited company. The FCA says business lending of £25,000 or less to sole traders and small partnerships can fall within the consumer credit regulatory perimeter, whereas the same loan to a limited company would not. Business lending above £25,000 would generally fall outside it.

A sole trader can move to a limited company at any time, and GOV.UK says it is usually easier to move from being a sole trader to a limited company than the other way round. People usually consider it when the risk, the profit or the plans for growth change.

Whether it saves tax depends on your circumstances, so take advice from an accountant first. Our guide on how to set up a limited company walks through the registration steps.

Capzy is a credit broker, not a lender, and is paid by the lender. Registering as a sole trader is a matter for HMRC and is free, so Capzy has no part in it. Once you are trading, we can introduce you to lenders for business finance.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria. Capzy does not give tax, legal or accounting advice, so ask an accountant about your own situation.