A sole trader is a self-employed individual where the business and the owner are the same legal entity, with profits taxed as personal income through Self Assessment.

A sole trader is the simplest way to run a business in the UK. There’s no legal distinction between you and the business, and you operate the business as an individual rather than through a separate company.

This all means you earn the income personally, pay tax personally and take personal responsibility for how the business operates. For many business owners, this structure feels straightforward and flexible, particularly in the early stages.

How does being a sole trader work?

As a sole trader, you run the business in your own name, or under a trading name. You don’t need to register a company with Companies House. The business can still:

earn income;
enter into contracts;
buy assets;
employ staff;
register for VAT if required.

Legally, everything sits with you as an individual. If the business changes direction or stops trading, there’s no separate entity to close down.

How is a sole trader taxed?

All profits from the business are treated as your personal income. You pay tax through Self Assessment, which usually includes:

Income Tax on profits
Class 2 and Class 4 National Insurance

Tax is based on profit for the year, after allowable business expenses have been deducted. There’s no separation between business profit and personal income, so everything earned is assessed in the same tax year.

How do you take money as a sole trader?

There’s no formal process for paying yourself as a sole trader. You simply take money from the business as needed. These withdrawals are known as drawings and don’t affect how much tax you pay. Tax is based on profit, not on how much cash you take out.

This can feel simple day to day, but it can also mean there’s less control over timing income for tax purposes.

What’s involved in running a sole trader business?

Running a business as a sole trader still comes with responsibilities, although they’re lighter than those of a limited company. These include:

Keeping records of income and expenses
Submitting an annual Self Assessment tax return
Paying Income Tax and National Insurance
Registering for VAT if turnover requires it
Meeting PAYE obligations if you employ staff

While many sole traders work with an accountant, the legal responsibility for accuracy and compliance always sits with the individual.

Sole trader or limited company?

The main difference between a sole trader and a limited company is legal separation.

As a sole trader, you and the business are the same. You’re personally responsible for any debts or obligations, and profits are taxed as personal income as they arise.

A limited company introduces a separate legal entity. It brings more reporting and formality, alongside clearer separation between personal and business finances and more flexibility over how income is taken over time.

In practice, sole trader businesses often feel easier to start and run. Limited companies tend to suit businesses where profits are growing, risk needs managing more carefully or long-term planning matters.

Is being a sole trader right for your business?

Being a sole trader can work well where the business is simple, profits are modest or flexibility is the priority.

As a business grows, it’s common for owners to review whether the structure still fits. That review usually considers profit levels, risk, tax and how the business supports personal income.

A short conversation with an accountant can help confirm whether a sole trader structure suits your situation now, or whether a different structure would support your next stage more effectively.

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