Sole trader

Also called Self-employed, Sole proprietor

The simplest way to be in business: you and the business are the same legal person, with everything that implies.

What it means

As a sole trader there is no separate legal entity. You own the business, you keep the profits after tax, and you are personally responsible for its debts. There is no distinction between your money and the business's money in law, only in your bookkeeping.

You register with HMRC for Self Assessment and pay income tax and Class 4 National Insurance on your profits.

Why it matters

It is fast, cheap and private — nothing is published at Companies House — and for many businesses it is the right answer for years.

The cost is unlimited liability. If the business owes money it cannot pay, the creditors can pursue your personal assets, including your home.

What it looks like in practice

Register with HMRC by 5 October following the tax year you started trading in.

Keep a separate bank account. It is not legally required and it is the single practical habit that makes everything else easier.

You can still trade under a business name; you just have to show your own name on invoices and other formal documents.

What to watch out for

Assuming insurance covers what liability does not. Professional indemnity and public liability cover specific risks, not trading debts.

Staying a sole trader out of inertia once profits, contracts or risk have grown. The switch to a limited company is a real decision with tax and liability consequences in both directions — worth reviewing annually rather than deciding once.

Where to get proper advice

GOV.UK covers registration. An accountant should review the sole trader versus limited company question with you each year — it turns on numbers that change.