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Sole Trader

Also known as: Sole Proprietor, Self-Employed

Definition

A sole trader is someone who runs their own business as an individual, with no legal separation between the person and the business, meaning they're personally responsible for all business debts.

Understanding sole trader structure is essential for will planning because your business ceases immediately upon death, but business assets become part of your personal estate.

What Does Sole Trader Mean?

A sole trader is the simplest business structure in the UK for self-employed people. Under HMRC guidance, you and your business are legally the same entity—there's no distinction between you personally and your business. This means you have unlimited liability, where you're personally responsible for all business debts. If your business can't pay what it owes, creditors can pursue your personal assets like your home, car, or savings.

While administratively simple to set up, sole traders face significant personal financial risk through unlimited liability. You must register with HMRC for Self Assessment if you earn more than £1,000 in a tax year. You'll pay Income Tax on profits and Class 2 and Class 4 National Insurance. If your turnover exceeds £90,000, you must also register for VAT under the Value Added Tax Act 1994.

When you die, your sole trader business ceases immediately because it cannot exist separately from you. Your business assets become part of your personal estate—equipment, stock, client lists, intellectual property, and bank balances all pass through your will alongside personal assets. Business debts also become personal estate debts that your executor must settle before distributing inheritances.

Sarah runs a mobile dog grooming business with a £18,000 van, £4,500 in equipment, and 200 regular clients. When she dies unexpectedly, her business ceases immediately. Her husband Tom inherits these assets through her will, but he cannot simply continue Sarah's business. Tom must either sell the assets, register as a new sole trader and hire a groomer, or give the assets to another groomer who would register their own business. Without succession planning, the client relationships and goodwill Sarah built over eight years could evaporate.

Sole trader businesses may qualify for Business Property Relief (BPR), reducing inheritance tax. Currently, businesses as going concerns receive 100% relief if owned for two years before death. However, from April 2026, only the first £1 million of combined business and agricultural property qualifies for 100% relief—amounts above £1 million receive only 50% relief, resulting in an effective 20% inheritance tax rate on the excess.

Common Questions

"Do I need to register as a sole trader to start my business?" You must register as a sole trader with HMRC if you earn more than £1,000 in a tax year (6 April to 5 April). However, you can start trading immediately without registering—the registration requirement only kicks in once you exceed the £1,000 threshold or need to prove self-employment status for benefits like Tax-Free Childcare.

"Can I be a sole trader and employed at the same time?" Yes, you can be employed by another business and operate as a sole trader simultaneously. There's no limit to the number of jobs you can have. You'll pay income tax and National Insurance through PAYE for your employment, and complete a Self Assessment tax return for your sole trader income.

"What happens to my sole trader business when I die?" A sole trader business ceases to exist immediately upon the owner's death because there's no legal separation between you and your business. However, you can leave your business assets (equipment, stock, goodwill, client lists) through your will. Your beneficiaries would need to register their own business if they wish to continue trading using those assets.

Common Misconceptions

Myth: "As a sole trader, I can't employ anyone—it has to be just me."

Reality: You can employ staff as a sole trader. The term "sole trader" refers to business ownership structure (one owner), not the number of employees. Many sole traders employ multiple people while remaining the sole business owner. You would need to register as an employer with HMRC, run payroll, and comply with employment law, but the business structure remains sole trader.

Myth: "Sole trader and self-employed mean the same thing."

Reality: All sole traders are self-employed, but not all self-employed people are sole traders. "Self-employed" is a tax status describing anyone whose income isn't taxed at source through PAYE—this includes sole traders, business partners, and some company directors. "Sole trader" is a specific business structure for self-employed individuals operating without a formal company.

  • Limited Company: Alternative business structure with limited liability where the business is a separate legal entity, unlike sole traders who have unlimited personal liability.
  • Self-Employment: Broader tax status category that includes sole traders, partnerships, and some limited company directors who aren't taxed through PAYE.
  • Business Assets: Equipment, stock, intellectual property, and goodwill that sole traders own as part of their personal estate and can leave through their will.
  • Freelancer: Common type of sole trader operating in professional services like writing, design, or consulting.
  • Business Succession Planning: Critical planning process for sole traders to protect business value and ensure smooth transition when the owner dies.

Need Help with Your Will?

Understanding sole trader structure is crucial for protecting your business assets in your will. Without proper planning, the business you've built could cease abruptly, leaving your family without the value you created.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete, legally binding will plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.