A sole trader is someone who runs their own business as an individual: you're self-employed, you make every decision and you keep all the profit after tax. It's the simplest UK business structure, but the liability is unlimited, so you're personally responsible for all of the business's debts. You must register for Self Assessment once your trading income passes £1,000 in a tax year.
GOV.UK calls it the simplest structure to set up and keep records for, and most people start out this way. That's fair. What the short definitions leave out is where the traps sit: the £1,000 test, the registration deadline and the personal risk. Here's the full picture in one place.
Sole trader at a glance
| Question | The answer for a sole trader |
|---|---|
| Who owns the business? | You do. There's no separate legal person |
| Who's liable for debts? | You are, personally and without limit |
| Who keeps the profit? | You do, after Income Tax and National Insurance |
| Do you need to register before trading? | No. You can start straight away |
| When must you register? | For Self Assessment once trading income goes over £1,000 in a tax year |
| Can you have a job as well? | Yes. You can be employed and self-employed at the same time |
| What name can you use? | Your own name or a trading name |
The £1,000 test is about income, not profit
This is the detail most people get wrong. GOV.UK's trading allowance guidance says you must register for Self Assessment if your gross trading income is over £1,000. Gross means the total you take in before any expenses come off. So if you sell handmade cards worth more than £1,000 in a tax year, you need to register even if most of that went straight back out on card stock and postage and your profit is tiny.
The flip side helps you. If your gross income is over £1,000, you can choose to deduct the £1,000 allowance instead of your actual expenses. GOV.UK calls this partial relief. If your real costs are lower than £1,000, the allowance gives you the bigger deduction. If they're higher, claim the expenses instead. You can't use the allowance for income from a partnership.
How to set up as a sole trader
- Check you're trading. GOV.UK says you're likely to be trading if you sell regularly to make a profit, make items to sell, earn commission or are paid for a service.
- Pick your business name. Use your own name or a trading name.
- Start keeping records from day one. You'll need them to work out your profit or loss.
- Register for Self Assessment once your gross trading income passes £1,000. The deadline is 5 October after the end of the tax year you started in, so for the 2025 to 2026 tax year it was 5 October 2026.
- Check whether you need licences, permits or insurance for what you do.
- Register for VAT if you meet the requirements, or earlier if you want to reclaim VAT on business costs.
If you're registering for the first time, my step-by-step guide on how to register as self-employed in the UK walks through the HMRC side screen by screen.
What tax and National Insurance you pay
HMRC works out what you owe from your Self Assessment return, based on your profit. Profit is your self-employed income minus your allowable expenses. For National Insurance, the 2026 to 2027 rules from GOV.UK are:
| Your annual profit | Class 4 National Insurance | Class 2 National Insurance |
|---|---|---|
| Under £7,105 | Nothing | Nothing to pay, but you can pay voluntary Class 2 at £3.65 a week |
| £7,105 to £12,570 | Nothing | Treated as paid, which protects your record |
| Over £12,570 up to £50,270 | 6% on profits in this band | Treated as paid |
| Over £50,270 | 2% on profits above £50,270 | Treated as paid |
Those figures are as of October 2026. The middle row is the quiet win: once your profit reaches £7,105, Class 2 is treated as paid, so you build State Pension qualifying years without paying anything. If your profit is below that, the voluntary Class 2 rate is a cheap way to fill a gap. My explainers on Class 2 National Insurance and Class 4 National Insurance go deeper.
The risk you're taking on
Unlimited liability is the trade-off for all that simplicity. GOV.UK's comparison table puts it plainly: as a sole trader you're personally responsible for all of the business's debts, and if something goes wrong, you'll have less protection. A limited company's owners are only on the hook up to what they invested.
That doesn't make a company automatically better. Directors have to follow rules on taking pay out, file accounts and run a separate company tax return. GOV.UK also says it's usually easier to move from sole trader to limited company than the other way round, which is a good reason to start simple and switch later. My comparison of sole trader vs limited company sets out when the switch makes sense.
My verdict
If you're testing an idea, freelancing or running a side business, being a sole trader is the right place to start. It's quick, cheap and you can stop without any paperwork at Companies House. Watch the £1,000 gross income line, register by 5 October, and keep your records from the first sale. Once the business carries real debts, contracts or staff, that's when I'd look hard at a limited company.
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The self-employed rates sit in the full rates table in the National Insurance rates.
Frequently asked questions
What is a sole trader in the UK?
A sole trader is a self-employed person who runs their own business as an individual, makes all the business decisions and keeps all the profits after paying tax. It's the simplest business structure to set up.
Do I need to register as a sole trader before I start?
No. GOV.UK says you can start trading straight away without registering, but you must register for Self Assessment if you earn more than £1,000 from trading in a tax year.
Is the £1,000 trading allowance based on profit or income?
It's based on gross trading income, which is the total before expenses. If your gross trading income is over £1,000, you must register for Self Assessment, even if your profit is lower.
Can I be employed and a sole trader at the same time?
Yes. GOV.UK says you can be a sole trader as your only job or be employed and self-employed at the same time.
How much National Insurance does a sole trader pay?
For 2026 to 2027, Class 4 is 6% on profits over £12,570 up to £50,270 and 2% above £50,270, as of October 2026. Class 2 is treated as paid once profits reach £7,105.
What's the downside of being a sole trader?
Unlimited liability. You're personally responsible for all of the business's debts, so if something goes wrong you have less protection than a limited company owner.
What's the deadline to register for Self Assessment?
You must tell HMRC by 5 October after the end of the tax year you need to file for. For the 2025 to 2026 tax year that was 5 October 2026, and registering late could mean a penalty.
