Is sole trader right for you?

Understand the advantages and disadvantages before you decide.

Sole trader vs limited company

Choosing your business structure is one of the first decisions you'll make. Here's how they compare.

Sole trader: Simplest to set up. You keep all profits but are personally liable for debts.
Partnership: Share responsibilities and profits. Partners share liability for business debts.
Limited company: Separate legal entity. Personal liability limited to investment, but more admin.
LLP: Partnership with limited liability. Must file accounts at Companies House.

Business structure affects tax liability, personal liability, and required paperwork. Professional advice is recommended when choosing the right structure.

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Register as self-employed (opens in a new tab)

Understand Self Assessment

How to file your Self Assessment tax return and pay your tax bill.

Self Assessment deadlines

Sole traders must file annual Self Assessment returns. Here are the key dates.

Paper return deadline: 31 October
Online return and payment deadline: 31 January
Second payment on account: 31 July
Late filing penalty: £100, automatic
Late payment: Interest, and further penalties

If you need to file a Self Assessment return and are not already registered, register with HMRC by 5 October after the end of the relevant tax year. Sole traders generally need to file when gross trading income exceeds £1,000, although other reasons can also require or justify a return.

Registration threshold: Over £1,000 earned from self-employment in a tax year, before expenses
Registration deadline: 5 October after the end of the tax year you started
How to register: Online with HMRC, or by post using form CWF1 if you are a sole trader (form SA1 is for people who are not self-employed)
Sign-in details: Government Gateway or GOV.UK One Login
UTR delivery (registered online): In your personal tax account within 72 hours
UTR delivery (registered by post): Usually by post within 15 working days
UTR delivery (living abroad): 21 days by post
Online registration from abroad: Not available; register by post
UTR format: 10-digit number, sometimes called "tax reference"
Tax year dates: 6 April to 5 April

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National Insurance for sole traders (opens in a new tab)

You'll pay Class 4 National Insurance contributions on your profits. Class 2 is no longer compulsory.

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Keep business records (opens in a new tab)

What records you must keep and for how long.

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Claim tax-deductible expenses (opens in a new tab)

Reduce your tax bill by claiming allowable business expenses.

Check if you need to register for VAT

You must register for VAT when your taxable turnover passes the registration threshold in any rolling 12 months, or when you expect it to pass the threshold within the next 30 days alone.

Choosing the right business insurance

Start with the insurance the law requires: if you employ anyone, you must have employers' liability insurance with at least £5 million cover, and business vehicles need motor insurance.

Insurance for sole traders

As a sole trader, you're personally liable for business debts. Insurance can protect you.

The insurance your business needs depends on what it does. Some types are required by law. Some are required by professional regulators. The rest are not required by law, but you may still need them for contracts or to protect your business. Each type below starts with its legal status, so you can see which group it is in.

Employers' Liability: Required by law if you employ anyone, with at least £5 million of cover. Covers claims from employees injured or made ill at work.
Motor Insurance: Required by law for any vehicle used for business on roads or in other public places. Driving uninsured is a criminal offence. Covers claims from accidents in vehicles used for work.
Professional Indemnity: Required by some professional regulators, for example for many solicitors, financial advisers and architects. Covers claims of negligent advice.
Public Liability: Not required by law, but clients and landlords often require it in contracts. Covers claims for injury to other people or damage to their property.
Products Liability: Not required by law, but essential if you make or sell goods. Covers claims from defective products.
Business Contents: Not required by law, but recommended if you have equipment or stock. Covers business assets against theft, fire and damage.
Business Interruption: Not required by law, but recommended if a fire or flood would stop you trading. Covers lost income when you cannot trade.
Cyber Insurance: Not required by law, but recommended if you hold personal data or rely on IT. Covers data breaches, ransomware and regulatory fines where insurable.
Key Person: Not required by law, but worth considering if your business depends on a few people. Covers the business if one of them dies or is incapacitated.

Choosing the right cover

Do you employ anyone? Employers' Liability is required by law
Do you use vehicles for work? Business motor insurance is required by law for use on roads or in other public places
Are you in a regulated profession? Check whether your professional regulator requires Professional Indemnity, and how much
Do you deal with customers or visit other premises? Public Liability is not required by law, but clients and landlords often require it
Do you make or sell physical products? Products Liability is not required by law, but essential

Become a sole trader

Next steps

Self Assessment for landlords

Insuring your new business

Flood and water management for your business

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