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Thinking of starting your own business? You’ve likely come across the term sole trader. But what is a sole trader exactly? Is it the same as being self-employed or a freelancer? And how does it compare to a limited company?
In this guide, we’ll cover:
- The definition of a sole trader
- How it works in the UK
- Tax rules, VAT threshold, and business liability
- The advantages and disadvantages
- Whether it’s the right structure for you
And how platforms like Juuli can support sole traders with invoicing and expense tracking
What Is a Sole Trader?
A sole trader is the simplest type of business structure. It means you're self-employed and personally responsible for the business’s profits, losses, and any legal liability.
📌 Sole trader definition: An individual who owns and runs a business on their own, with no legal distinction between the owner and the business.
Many people choose to operate as sole traders because it's quick to set up, affordable, and ideal for one-person ventures.
Sole Trader vs Limited Company: What’s the Difference?
The key difference between a sole trader and a limited company is how liability and taxation are handled.
Advantages of Being a Sole Trader
✅ Easy and fast to register with HMRC
✅ Low start-up and running costs
✅ Full control over decisions
✅ All profits go directly to you
✅ Ideal for side hustles or low business turnover
Disadvantages to Consider
⚠️ You’re personally responsible for any debts or legal claims
⚠️ Fewer tax planning options compared to a company
⚠️ May seem less ‘established’ to some clients
⚠️ Limited funding opportunities
Do Sole Traders Need a Business Bank Account?
Not legally required in the UK, but having a separate sole trader business bank account is highly recommended. It helps with:
- Clear separation of personal and business finances
- Easier accounting and bookkeeping
- Professionalism when dealing with clients
Tracking tax-deductible expenses
What Is the VAT Threshold for Sole Traders?
If your business turnover exceeds £90,000 (2024 threshold), you must register for VAT—even as a sole trader. This means:
- Charging VAT on sales
- Submitting regular VAT returns
- Keeping accurate digital records
Tax and Accounting for Sole Traders
Sole traders pay tax through Self Assessment:
- Income tax on profits above the personal allowance
- Class 2 and Class 4 National Insurance Contributions
There’s no fixed sole trader tax rate—your tax depends on your total income level.
What Can Sole Traders Deduct From Tax?
You can deduct legitimate business expenses from your income to reduce your taxable profit. Common deductible expenses include:
- Office equipment and tools
- Software and subscriptions
- Business-related travel
- Marketing and professional services
- A portion of home utilities (if you work from home)
Is a Sole Trader the Same as Self-Employed?
Yes. All sole traders are self-employed, but not all self-employed people are sole traders. For example, someone may register a limited company and still be self-employed.
Examples of Sole Trader Businesses
Wondering what kind of jobs fall under sole trading? Here are some common examples—especially among digital professionals and service-based entrepreneurs:
- Graphic designer
- Marketing consultant
- Web developer
- Freelance copywriter
- Virtual assistant
- Social media manager
- Online business coach
- UX/UI designer
- Translator
- Online tutor or course creator
📝 Many freelancers technically operate as sole traders—even if they don’t formally use that title.
Can Sole Traders Use Juuli?
Absolutely. While many financial tools are designed for companies, Juuli helps sole traders manage their income professionally—without needing to set up a limited company.
With Juuli, you can:
- Create branded invoices without a company
- Track your earnings and tax-deductible expenses
- Accept payments via bank transfer or card
- Monitor your business activity with a real-time dashboard
Final Thoughts
Becoming a sole trader is one of the easiest and most flexible ways to start working for yourself. It’s a great choice if you’re just starting out, want low overhead, or need time to test your business idea.
Whether you call yourself a freelancer, consultant, or creative entrepreneur—if you work independently and invoice clients directly, chances are you’re already acting as a sole trader.
