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5 Advantages and Disadvantages of Being a Sole Trader in the UK in 2024

by | Jan 10, 2024

Impact Brixton is home to over 400 freelancers. And a question we’re often asked is whether it’s better to become a sole trader or set up a company. 

This is ultimately all about how you want to offer your services to clients – and there are lots of options available. You can fly solo as a sole trader, you can find a like-minded person and set up a partnership, or you can even set up a limited liability company.

There are advantages and disadvantages to every option – it’s all about working out which is the best fit for you and your goals. 

Here’s everything you need to know about setting up as a sole trader in the UK in 2024, including the advantages, disadvantages and alternatives.

What is a sole trader? 

In the United Kingdom, a sole trader is someone who is self-employed and runs a business on their own. They are the sole owner of the business, which means that they’re responsible for all of its debts and liabilities. 

Lots of people choose to become sole traders because they’re not required to register their business with Companies House. However, it’s worth remembering that a sole trader may need to register for other taxes, such as income tax and National Insurance. 

In 2022, a whopping 74% of British businesses were sole traders. That’s about 4.1 million businesses out of a total of 5.5m. So if you do decide to become a sole trader, you’ll be one of very many! 

But why do so many people decide to become a sole trader? Read on to discover the key advantages and disadvantages of operating as a sole trader.

5 Advantages of Becoming a Sole Trader

There are tons of advantages to setting up as a sole trader. Here are the top five reasons to consider becoming a sole trader, including increased control, flexibility and financial freedom. 

1. Control and flexibility

The great thing about being a sole trader is that you can enjoy complete control over your business. Sole traders can set their own hours, choose their own clients, and make all business decisions independently. It’s the ideal option for people who prefer to be their own boss and have the freedom to work in a way that suits them. 

2. Quick and easy setup

A huge advantage of setting up as a sole trader is that there is no need to register with Companies House or file any complex paperwork. This can save you heaps of time and money. 

The only thing you need to do is make sure you’re registered as self-employed with HMRC. This is because you need to pay income tax through a self-assessment tax return every year, which you do through HMRC. But there’s no need to worry! Registering is a quick and easy process. You just have to make sure you do your tax return on time. And if you become VAT-registered, you’ll need to file and pay this quarterly.

Because they don’t need to register with Companies House, lots of sole traders use their home address to conduct all their business affairs. But while that’s perfectly legal, it’s worth considering your business’s reputation. Having a professional business address can help to build a really professional and credible image for your brand. You can sign up to Impact Brixton’s virtual office in London to get an impressive address in an area renowned for small businesses from just 0.41p per day. It’s a quick and cost-effective way to elevate your brand. 

3. Financial rewards

Most sole traders don’t have any employees. That means that they get to keep all of the profits! This can be a significant advantage, as it allows them the freedom to reinvest their profits in their business, or use the money for personal expenses. Hello, holiday in the sun! 

It’s worth noting that you can have employees as a sole trader – you just need to make sure that you’re registered as an employer with HMRC, and then you’ll need to submit a PAYE registration form. This is to get payroll set up for your employees. 

4. Extra privacy

Unlike limited liability companies, sole traders aren’t required to disclose their personal financial information to the public through Companies House. And because they aren’t registered on Companies House, details including their business address aren’t listed on the Companies Register, which is a public resource easily accessible online. This can be a big draw for those who value their privacy.

5. Direct interaction with customers and clients

One of the benefits of being a sole trader is that you can interact directly with your customers and clients. This is an invaluable opportunity to build meaningful relationships, cultivate trust, and deliver exceptional service. It’ll also help you to understand their needs and preferences, and to gather first-hand feedback. That means that you can tailor your offerings to meet their expectations, fostering customer loyalty and satisfaction. 

5 Disadvantages of Becoming a Sole Trader

As with any venture, there are some drawbacks to becoming a sole trader. Here are five disadvantages that you may encounter as a sole trader. 

1. Personal liability

While becoming a sole trader does mean that you get to enjoy all of the profits of your company, it also means that you take total personal responsibility for any debts that your company incurs. This is known as personal liability, which basically means that if your company racks up any debt, it’s up to you and you alone to pay them off. But don’t worry too much – as you’re the only person running your business, it’s very possible for you to budget effectively to make sure this doesn’t happen. 

You can also take out professional indemnity (PI) insurance. This means that if a job doesn’t quite go to plan and your client says that they’ve made a loss as a result, your professional indemnity insurance company compensates your client and pays for a specialist solicitor if you need one. It’s a great way to protect your personal assets. 

Alongside these responsibilities, you’re also entirely responsible for submitting your own tax return – and there are some updated tax requirements that you’ll need to be aware of for 2024. Read our complete guide to paying tax as a sole trader for more information.

2. Reduced access to funding

While in many ways setting up as a sole trader offers more financial freedom, many sole traders find it more difficult to secure funding than businesses with other structures, such as limited companies. This is because banks and other lenders are more likely to lend money to businesses that are separate legal entities from their owners, due to the limited liability that these structures offer their founders. 

It’s also often more difficult to find investors. This is because sole traders are unable to offer shares in their company, so reasons to invest are slim. So if you’re looking for tips on how to raise capital for your business, it’s perhaps not a good idea to set up as a sole trader!

3. Limited ability to grow

Inevitably, reduced access to funding results in limited ability for your company to grow. Sole traders may find it difficult to grow their businesses beyond a certain size, as they may not have the capacity to manage the increased workload or hire additional employees. But that doesn’t have to be a problem. Tons of sole traders are successful precisely because they’re the only employee in their business. They have a handful of regular clients who they know really well, and earn enough profits to live very comfortably. 

Working alone doesn’t have to be a disadvantage. The only thing we often find is that sole traders can be a bit lonely! That’s why we’ve set up a cosy and welcoming co-working space in the heart of Brixton Village. Freelancers, sole traders, small business owners and creatives all gather to hot-desk and chat over free tea and cakes. It’s a great way to network and get some social interaction into your day! 

4. Difficult to transfer ownership

If you plan on transferring ownership of your business to family members or other successors, you may want to consider setting up a limited company instead. That’s because a limited company is its own legal entity, so it’s separate from you and easy to transfer ownership. A sole trader business is not a separate legal entity, which means that the owner’s personal assets are tied up in the business and it’s much harder to pass on. 

5. Customer trust

When choosing who to do business with, some customers prefer the security and stability offered by limited liability companies. Sole traders are sometimes perceived as riskier due to their smaller scale and unregistered status. Larger companies, often operating as limited liability entities, can sometimes inspire greater trust due to their established infrastructure, extensive resources, and reputation for producing quality products.

But! Some people prefer to work with small businesses and sole traders because they provide a much more personalised service. Forget waiting for your query to be escalated, with a sole trader you’re talking to the owner of the company straight away. So it can go both ways!

Frequently Asked Questions (FAQs)

What are some sole trader company examples?

Sole trader jobs typically include builders, plumbers, electricians, painters and decorators, taxi drivers and window cleaners. Sole traders can also include self-employed copywriters, designers and other creative staff. 

As a sole trader do I have to register my company with Companies House?

No! There’s no need to worry about sole trader registration with Companies House. If you’re a sole trader, set up is relatively easy – there’s much less paperwork involved than setting up as a limited company. 

As a sole trader do I have to register my company with HMRC?

Yes. While you don’t need to register your company with Companies House, all of your sole trader accounts go through HMRC. You need to submit an annual self-assessment tax return in order to pay income tax. So it’s super important you register as a sole trader with HMRC!

It’s also worth noting that as a sole trader you have allowable expenses that you can claim back off your tax, including part of your bills if you work from home. Here’s what you need to know! 

What are the key sole trader insurance requirements in the UK?

When it comes to sole trader legal requirements, the key sole trader insurance requirements in the UK vary depending on the type of business you run. However, there are two types of insurance that all sole traders should consider:

Public liability insurance: This covers you against claims for injury or damage caused by your work to third parties, such as customers, clients, or members of the public. 

Employers’ liability insurance: This is required by law if you employ any staff, even if they are only casual or temporary workers. It covers you against claims for injury or illness suffered by your employees while they are working for you. 

Professional indemnity insurance: This covers you against claims for professional negligence, such as mistakes or errors in your work. 

Business interruption insurance: This covers you against financial losses if your business is interrupted due to events such as fire, theft, or damage to your property. 

Cyber insurance: This covers you against losses caused by cyber-attacks, such as data breaches or hacking. 

It’s important to compare quotes from different insurers to get the best deal on your insurance. You can also get advice from an insurance broker who can help you find the right cover for your needs!

What are the alternatives to setting up as a sole trader?

If you’re not sure whether being a sole trader is the right option for you, there are a number of other business structures that you may want to consider. You can find them in our comprehensive guide to starting a small business in 2024


And that’s it for sole trader advantages and disadvantages! Being a sole trader in the UK can be a great way to get started in business for yourself. It’s relatively easy and inexpensive to set up, and you have a lot of flexibility in how you run your business. However, it’s important to be aware of the risks involved, such as unlimited personal liability and limited access to funding.

If you’re considering becoming a sole trader, it’s important to weigh the pros and cons carefully and make sure that it is the right business structure for you. You can also seek professional advice from an accountant to get help setting up your business and understanding your tax and legal obligations.

And if you’re looking for a business address for rent to give your enterprise a professional and credible reputation, check out our virtual office offers. You can use our address in the heart of London’s Brixton Village from just 0.41p per day!