Choosing the right business structure is one of the first key decisions when you start out. For many UK entrepreneurs, becoming a sole trader is the simplest way to get going. But while the process is easy, it is important to weigh up the benefits and drawbacks.

This post covers the main sole trader advantages and disadvantages and includes practical advice, tips and links to help you decide if it is right for you.

What is a Sole Trader?

A sole trader is someone who runs a business as an individual. Legally, there is no separation between you and the business. You keep all the profits but are also personally responsible for any debts or legal issues.

Being a sole trader is the most popular business structure in the UK, especially for freelancers, contractors, small shops and tradespeople.

How to set up as a sole trader on GOV.UK

Disadvantages of Being a Sole Trader

While the simplicity and control are big plus points, there are limitations and risks that every sole trader should be aware of before registering. Below are some of the most common disadvantages to consider.

New Rules Ahead

It is important to be aware that new tax rules are being introduced under the Making Tax Digital (MTD) programme. From 2026, most sole traders with annual business or property income over £50,000 will need to keep digital records and submit quarterly tax updates to HMRC instead of one annual Self-Assessment tax return. This extra reporting means more admin, more deadlines and possibly more cost for software or professional help.

Learn about Making Tax Digital for Income Tax

For some small businesses, this extra requirement could reduce the simplicity benefit that makes sole trader status attractive. It is another factor to weigh up when deciding whether to remain a sole trader or consider forming a limited company instead.

Unlimited Liability

This is one of the biggest risks. If your business gets into debt, you are personally liable. This means creditors could claim against your personal assets, such as savings or your house.

For higher-risk activities, a limited company structure may be safer.

Read about limited liability

Raising Finance Can Be Harder

Banks and investors often prefer dealing with limited companies. Many lenders see sole traders as higher risk because the business depends solely on you. You may be asked for personal guarantees on loans.

Tip: Keep detailed records and business plans to strengthen loan applications.

Less Tax Efficiency at Higher Profits

All profits above your Personal Allowance are taxed as income. This can push you into higher tax bands more quickly. A limited company allows for more flexible tax planning through salaries, dividends and expenses.

Income tax rates and bands

Limited Growth Perception

Some larger clients or suppliers prefer working with limited companies. Being a sole trader may appear less established or less stable for bigger contracts or tenders.

Harder to Sell or Pass On

Your business is legally tied to you. This can make it harder to transfer ownership if you want to retire or sell up. By comparison, limited company shares can be sold to new owners.

You Manage Everything Alone

Running your own business alone can be rewarding but demanding. You are responsible for marketing, admin, bookkeeping, customer service and taxes. Many sole traders find it difficult to take holidays or time off, especially if they have no support team.

Tip: Consider outsourcing tasks like bookkeeping or using accounting software to lighten the load.