Sole Traders in the UK: A Complete Guide (2024/25)

The sole traders business structure is one of the most popular in the UK — and for good reason. It’s simple to set up, easy to manage, and ideal for self-employed individuals, freelancers, and small business owners. As of 2024, more than 3.5 million people in the UK are registered as sole traders.

This guide explores what it means to be a sole trader, how to register, the benefits and responsibilities involved, and how it compares to other business types.

📌 What Is a Sole Traders?

A sole traders is a self-employed person who owns and operates their business as an individual. There is no legal distinction between the owner and the business — meaning the sole trader is personally responsible for all aspects of the business, including its profits and debts.

Unlike limited companies, sole traders don’t need to file formal accounts with Companies House but must still meet HMRC tax obligations.

📝 How to Register as a Sole Trader in the UK

You must register with HM Revenue & Customs (HMRC) as soon as you start trading or earning income from self-employment.

✅ Registration Steps:

Go to GOV.UK: Register for Self Assessment
Provide:
- Your full name, address, date of birth
- National Insurance (NI) number
- Business type and name (if applicable)
HMRC will issue:
- Your Unique Taxpayer Reference (UTR)
- Instructions to submit a Self Assessment tax return

💼 What Kind of Businesses Can Be Sole Traders?

Sole traders operate across many sectors, including:

Freelancers (writers, designers, consultants)
Tradespeople (plumbers, electricians, decorators)
Personal services (hairdressers, tutors, trainers)
Online businesses (Etsy sellers, dropshippers, influencers)
Retailers and market traders

💷 Tax Responsibilities of a Sole Trader

1. Income Tax

You pay income tax on your profits (not revenue).
Tax rates for 2024/25:
- 0% on the first £12,570 (personal allowance)
- 20% on income from £12,571 to £50,270
- 40% and above for higher earnings

2. National Insurance

You’ll pay:
- Class 2 NICs: Flat weekly rate (£3.45/week in 2024/25)
- Class 4 NICs: 9% on profits between £12,570 and £50,270

3. VAT (if applicable)

You must register for VAT if your turnover exceeds £90,000 in a 12-month period.
Voluntary registration is allowed even if under the threshold.

✅ Advantages of Being a Sole Trader

Benefit	Details
Easy Setup	Minimal paperwork and no registration with Companies House
Full Control	You make all decisions independently
Keep All Profits	No shareholders — profits are yours (after tax)
Privacy	No public accounts like limited companies
Low Costs	No filing or accountancy fees required by law (though bookkeeping is essential)

⚠️ Disadvantages and Risks

Disadvantage	Impact
Unlimited Liability	You’re personally responsible for debts and legal action
Less Credibility	Some clients prefer dealing with limited companies
Tax Inefficiency at Scale	Higher earners may pay more tax than under a limited company structure
Limited Growth Potential	Difficult to scale, secure investment, or hire staff compared to companies

💡 Tips for Sole Traders in 2024

Keep Clear Records:
Track all income, expenses, invoices, and receipts. Use apps like QuickBooks, FreeAgent, or Tide.
Open a Business Bank Account:
Though not legally required, it simplifies record keeping and looks more professional.
Consider Insurance:
Public liability, professional indemnity, or income protection insurance may be essential, depending on your industry.
Use HMRC’s Online Services:
Submit your Self Assessment tax return and make payments online.
Save for Tax Bills:
Set aside 20–30% of your income monthly to cover tax and NI liabilities.

📊 Sole Trader vs Limited Company

Feature	Sole Trader	Limited Company
Setup Time	Quick (same day)	Takes longer, formal registration
Liability	Unlimited personal liability	Limited liability protection
Tax	Income tax on profits	Corporation tax (19%) on profits
Control	100% individual control	Directors/shareholders may differ
Privacy	High (no public records)	Low (accounts filed publicly)
Funding/Loans	Harder to secure	Easier due to formal structure

📍 Sole Traders and Business Rates

If you run your business from non-residential premises, you may have to pay business rates (covered in the previous article). Home-based businesses usually don’t pay unless part of your home is exclusively used for work.

🔄 Can a Sole Trader Employ Staff?

Yes, sole traders can hire employees, but they must:

Register as an employer with HMRC
Set up a PAYE system
Provide pension schemes (if eligible)
Follow employment laws (contracts, minimum wage, etc.)

✅ When Should You Switch to a Limited Company?

You might consider switching if:

Your profits exceed £50,000 and tax efficiency becomes a concern
You want to limit your personal liability
You plan to hire or seek investment
You want to establish a more professional brand

It’s easy to switch from sole trader to limited company later if your circumstances change.

🔚 Conclusion

Becoming a sole traders is one of the easiest and most flexible ways to start a business in the UK. It suits individuals who want to work independently, manage their own income, and operate with minimal red tape.

While there are some risks — especially around liability — it remains an ideal structure for freelancers, side hustlers, and self-employed professionals in 2024.

For long-term growth, keep your records in order, plan your taxes early, and consider speaking to an accountant about scaling when the time is right.