What's the Difference Between Sole Trader and Self Employed?

If you're thinking about starting your own business in the U.K., you may be wondering what the difference between sole trader and self employed is. Accounting terms can be confusing so we are going to clear up what is meant here by these terms. 

Difference between Sole Trader and Self Employed: The Basics

In the U.K., there are two main types of businesses:

sole traders

and

limited companies. 

You might therefore be wondering where self-employed fits it?

Sole traders are self-employed individuals who run their businesses by themselves.

Limited companies are businesses that have been registered with Companies House, and the individuals that run them are company directors.

If you are running a limited company then you are technically the director of a limited company (and usually on the payroll as an employee), and not self employed.

One quirk is that, if you are the director of a limited company, in certain situations you will be referred to as self employed (even though that is not the case when we look at tax and company law). The main situation we see this happen is when applying for a mortgage. Banks and mortgage brokers will tell you that you are "self employed" and have you submit paperwork as such. This is one reason that confusion can occur with all these terms. 

As you can therefore see - there is no difference between the terms sole trader and self employed - they are one in the same thing and the terms are interchangeable. 

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