Most sole traders don’t need payroll software at all. That’s worth saying because a lot of content on this topic skips over it and jumps straight to product recommendations — which isn’t helpful if you’re about to spend money on something you don’t need.
Do sole traders actually need payroll software?
As a sole trader, you don’t pay yourself a salary in the conventional sense. You draw money from the business as you need it and pay tax on your profits through Self Assessment. No PAYE, no payslips, no RTI submissions. So: no payroll software required.
Two situations change that.
The first is if you take on staff. The moment you employ someone — even one part-time employee — you become an employer. You need to register as one with HMRC, set up PAYE, and start making RTI submissions. That’s when you need payroll software (or an accountant to handle it for you).
The second is if you pay yourself a small salary through PAYE on top of taking drawings. Some sole traders do this to build up a National Insurance record while keeping the salary below the NI threshold, so they’re not paying contributions on it. If that’s your setup, you need to run payroll for yourself.
If neither applies, you need Self Assessment, not payroll software.
What a sole trader’s payroll actually needs
Assuming you do need payroll — staff, or a PAYE salary for yourself — the requirements are simpler than most guides make them sound. RTI submissions to HMRC. Payslip generation. PAYE and NI calculations that update automatically in April when thresholds change. Auto-enrolment management if any of your employees qualify for a workplace pension.
That’s about it. You almost certainly don’t need complex HR features, multi-company payroll, shift scheduling, or anything enterprise-grade. Which means you probably don’t need to spend much.
HMRC Basic PAYE Tools
Free, HMRC’s own product, and good enough for a lot of sole traders. If you’re running payroll for yourself or for one or two employees, it handles RTI submissions, calculates PAYE and NI, and covers year-end forms. It doesn’t produce payslips or manage auto-enrolment, which matters more once you have staff — less so if it’s just you on PAYE.
The interface hasn’t been meaningfully updated in years. It gets the job done.
Cost: free for any number of employees.
Shape Payroll
One of the easiest payroll tools to use in the UK, and free for up to three employees. For a sole trader with one or two members of staff, the free tier covers everything: RTI, payslips, auto-enrolment. The interface is considerably more modern than HMRC’s own tool and guides you through each pay run rather than expecting you to know what you’re doing already.
If you’re new to running payroll — which most sole traders taking on their first employee are — Shape is a friendlier starting point than Basic PAYE Tools.
Cost: free up to 3 employees.
Employment Hero Payroll
Also free, and with no employee cap. Employment Hero’s free tier handles RTI, produces payslips, and manages auto-enrolment. The interface takes more getting used to than Shape — it assumes a bit more payroll knowledge — but once you’re set up it runs cleanly, and you’re not going to hit a headcount limit that forces you onto a paid plan as you grow.
Cost: free, unlimited employees.
Moneysoft Payroll Manager
When the free options stop covering what you need — more employees, more complexity — Moneysoft is the value leader. Around £72 a year for unlimited employees, with a comprehensive feature set: RTI, all statutory payments, auto-enrolment, CIS if you’re in construction. It’s a Windows desktop application, which means it’s tied to one machine. That’s a real constraint if you work from multiple locations, but the price makes it hard to dismiss.
Cost: from £72/year.
FreeAgent
Worth a mention specifically for sole traders because it combines payroll with invoicing, expenses, and Self Assessment in one place. For a sole trader managing the whole financial picture of the business, that integration is genuinely useful — particularly Self Assessment, which FreeAgent can largely pre-populate from your transaction data.
If you bank with NatWest or RBS, you get FreeAgent free as part of your business banking. Otherwise it starts around £19/month. That’s more than the options above, but it covers considerably more ground than a payroll-only tool.
Cost: free with NatWest/RBS; from £19/month otherwise.
Which one?
Start with the free options unless you have a specific reason not to. HMRC’s tool if you want zero setup friction and don’t need payslips. Shape if you’re new to payroll and want something that explains what it’s doing. Employment Hero if you’re hiring and don’t want to hit a cap.
NatWest/RBS customers should take a serious look at FreeAgent before anything else — it’s free, it does Self Assessment, and for sole traders that combination is hard to beat.
One thing to sort out before you start: if you’re not certain whether to pay yourself through PAYE or just take drawings, talk to an accountant first. The tax implications aren’t complicated, but they’re worth getting right before you set up a pay structure that’s difficult to unwind.
For the full market comparison, see our guide to the best payroll software for UK small businesses. If cost is the main factor, the free payroll software guide covers the no-cost options in more detail.
