Sole trader guide UK 2026/27

A sole trader is a self-employed person who runs a business personally. You and the business are not separate legal entities.

You make the business decisions, keep the profits after tax and remain personally responsible for business debts.

You register as a sole trader through Self Assessment. HMRC says you must register if you earn more than £1,000 in a tax year from self-employment, or in certain other cases such as registering for CIS or making voluntary Class 2 contributions.

If you already use Self Assessment for another reason, you still need to register your self-employment with HMRC.

For 2026/27, Class 4 National Insurance is charged at 6% on profits above £12,570 up to £50,270, then 2% above that level.

If profits are at least £7,105, Class 2 is treated as paid to protect your National Insurance record. Below that level, voluntary Class 2 may be available at £3.65 a week.

Income Tax is also due on taxable profits. The rate depends on your total income and where you are resident in the UK.

Allowable expenses reduce taxable profit when they meet the tax rules. The treatment depends on the type of cost and how it is used.

• Office costs and software
• Business travel
• Professional fees
• Insurance
• Advertising and marketing
• Staff costs
• Qualifying use of home costs

Trading losses can be relieved in several ways, but the rules are not automatic. Depending on the facts, a qualifying loss may be set against income or capital gains, carried forward against profits of the same trade, or used under special early-trade or terminal-loss rules.

Restrictions can apply. The best claim depends on your income, future profit expectations and the available time limits.

A sole trader structure can work well where simplicity and control matter more than limited liability or outside investment.

• Straightforward setup
• Fewer company-law filings
• Direct control of the business
• Profits belong directly to you after tax

The main trade-off is personal exposure. You are personally responsible for the debts of the business.

• Unlimited liability
• Cannot issue company shares to investors
• Business and owner are not legally separate
• A different structure may suit growth, investment or succession plans

There is no single profit level at which a company is always better. Tax, risk, admin, pension planning, investment plans and how much profit you need to withdraw all matter.

Use the sole trader versus limited company calculator as a starting point, then consider the wider commercial factors before changing structure.