Small business
How to pay yourself as a sole trader (without January regret)
Sole traders don't earn a salary — you take drawings, and the tax system doesn't care what you drew. It taxes the profit the business made, whether you took it all, some of it, or none. Once that clicks, paying yourself properly becomes a system rather than a worry.
Drawings, demystified
A drawing is any business money you take for yourself — a transfer to your personal account, a personal bill paid from the business card, cash from the till. Two things follow. Drawings are not an expense: they never reduce your profit or your tax. And there's no PAYE, no payslip, no employer paperwork — the tax all happens once a year through self assessment, on the profit figure.
That freedom is the trap: nothing is deducted as you go, so the tax exists whether or not you've kept it.
The three-pot system
The fix costs nothing and works for every sole trader we've ever met. Money lands in the business account. From it, on a rhythm — weekly or monthly, like a wage — you move a set amount to your personal account as your regular drawing, and a percentage of profit into a separate tax pot that you treat as HMRC's money already. For most sole traders 25–30% of profit is the right pot rate until your accountant tunes it — and in your first year, err higher, because payments on account mean the first bill is roughly a year and a half of tax at once.
Pay yourself like a wage, not like a raid
The biggest practical upgrade is regularity. Drawing a fixed, sensible amount on a schedule — rather than dipping in whenever — does three things: your personal life gets a predictable income, the business account balance starts meaning something, and lifestyle creep stops silently eating the tax pot. If the fixed amount isn't sustainable, that's not a bookkeeping problem — it's the business telling you something about pricing or costs, and better to hear it in month four than month twelve.
When to revisit
As profits grow, two conversations become worth having: whether a limited company would now serve you better, and whether pension contributions should be part of how you pay yourself. Both are numbers questions, not folklore — and both are exactly what a Business Numbers Review is for.
This is general information, not advice for your circumstances. If you'd like it applied to your situation, get in touch — the first chat is free.
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