One of the most common questions new sole traders ask is: “How do I actually pay myself?” The answer surprises people who are used to PAYE employment: you just transfer money from your business account to your personal account. No payroll, no payslips, no tax deducted at source. You take what you need, when you need it.
But the simplicity comes with a catch that catches people out: you’re taxed on your profit, not on what you withdraw. If your business makes £50,000 profit but you only take £30,000 out, you still pay tax on £50,000. Leaving money in the business doesn’t defer or reduce your tax bill — unlike a limited company, where profits are taxed at the corporation tax rate (19-25%) and only taxed personally when distributed as dividends.
This guide explains how drawings work, how much tax you actually pay, and how to plan for it. For the broader decision of whether a sole trader or limited company structure is better for your take-home pay, see our sole trader or limited company guide.
What are drawings?
Drawings are simply withdrawals of money from your business for personal use. As a sole trader, you and your business are the same legal entity — there’s no separate company that employs you. So you can’t pay yourself a salary, and you can’t be an employee of your own business.
When you want money for personal use, you:
- Transfer it from your business bank account to your personal account, or
- Withdraw cash from the business, or
- Pay for personal items directly from the business account (though this makes bookkeeping messy)
That’s it. No formal process, no HMRC reporting, no tax deducted at the time of withdrawal.
Drawings are not a business expense
This is the critical point: drawings do not reduce your taxable profit. They’re not an allowable expense. When you calculate your profit for tax purposes, you deduct business expenses (rent, materials, software, etc.) but you do not deduct the money you took for yourself.
Your taxable profit = income − allowable expenses. Your drawings are irrelevant to that calculation.
You’re taxed on profit, not on withdrawals
This means you pay tax on your full profit whether you withdraw it all, withdraw some, or withdraw none. Example:
- Your business makes £40,000 profit in 2026/27
- You withdraw £25,000 for personal use during the year
- You leave £15,000 in the business account
- You pay tax on £40,000, not £25,000
If you were hoping that leaving money in the business would defer tax, it doesn’t. The only way to defer personal tax on retained profits is to trade through a limited company — see our sole trader to limited company guide for how that works.
How much tax do you pay? (2026/27 rates)
As a sole trader, you pay two taxes on your profit: Income Tax and Class 4 National Insurance, as set out in HMRC’s guidance on self-employment tax. You may also pay voluntary Class 2 National Insurance if your profits are very low.
Income Tax (2026/27, England/Wales/NI)
| Band | Taxable profit | Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The Personal Allowance is reduced by £1 for every £2 of income above £100,000, reaching £0 at £125,140.
Class 4 National Insurance (2026/27)
| Band | Profit | Rate |
|---|---|---|
| Lower Profits Limit | £0 – £12,570 | 0% |
| Main rate | £12,571 – £50,270 | 6% |
| Upper rate | Over £50,270 | 2% |
Class 4 NI is collected through your Self Assessment return alongside income tax — it’s part of your 31 January and 31 July payments on account.
Class 2 National Insurance (voluntary)
Since April 2024, Class 2 is no longer compulsory. If your profits are above £7,105 (the Small Profits Threshold for 2026/27), you automatically get a State Pension qualifying year without paying anything. If your profits are below £7,105, you can pay Class 2 voluntarily at £3.65/week (£189.80/year) to protect your State Pension entitlement.
Worked examples: take-home pay at different profit levels
Example 1: £20,000 profit (basic rate)
- Income Tax: (£20,000 − £12,570) × 20% = £1,486
- Class 4 NI: (£20,000 − £12,570) × 6% = £446
- Total tax: £1,932
- Take-home: £18,068 (90.3% of profit)
Example 2: £40,000 profit (basic rate)
- Income Tax: (£40,000 − £12,570) × 20% = £5,486
- Class 4 NI: (£40,000 − £12,570) × 6% = £1,646
- Total tax: £7,132
- Take-home: £32,868 (82.2% of profit)
Example 3: £60,000 profit (higher rate)
- Income Tax: (£50,270 − £12,570) × 20% + (£60,000 − £50,270) × 40% = £7,540 + £3,892 = £11,432
- Class 4 NI: (£50,270 − £12,570) × 6% + (£60,000 − £50,270) × 2% = £2,262 + £195 = £2,457
- Total tax: £13,889
- Take-home: £46,111 (76.9% of profit)
Example 4: £80,000 profit (higher rate, personal allowance taper)
- Personal Allowance reduced by: (£80,000 − £100,000) — no reduction yet, full allowance
- Income Tax: (£50,270 − £12,570) × 20% + (£80,000 − £50,270) × 40% = £7,540 + £11,892 = £19,432
- Class 4 NI: £2,262 + (£80,000 − £50,270) × 2% = £2,262 + £595 = £2,857
- Total tax: £22,289
- Take-home: £57,711 (72.1% of profit)
The combined effective rate
| Profit | Income Tax | Class 4 NI | Total tax | Effective rate |
|---|---|---|---|---|
| £20,000 | £1,486 | £446 | £1,932 | 9.7% |
| £40,000 | £5,486 | £1,646 | £7,132 | 17.8% |
| £60,000 | £11,432 | £2,457 | £13,889 | 23.1% |
| £80,000 | £19,432 | £2,857 | £22,289 | 27.9% |
| £100,000 | £27,432 | £3,257 | £30,689 | 30.7% |
The effective rate rises steeply because the Personal Allowance is a fixed amount (£12,570) that becomes a smaller proportion of your profit as profit grows, and because the higher rate (40% + 2%) kicks in above £50,270.
How to actually withdraw money
There’s no formal process. The most common methods:
-
Bank transfer — set up a standing order or ad-hoc transfer from your business account to your personal account. Many sole traders transfer a fixed amount weekly or monthly, treating it like a “salary” for personal budgeting purposes. It isn’t a salary for tax purposes, but the regularity helps with cash flow management.
-
Direct payment of personal expenses — paying for personal items (groceries, rent, holidays) from the business account. This works but makes bookkeeping messy. You record these as drawings, not as business expenses. If you do this, your accountant or bookkeeping software will need to categorise them correctly.
-
Cash withdrawal — less common now, but still used by businesses that handle cash. Record each withdrawal as drawings.
Should you use a business bank account?
You’re not legally required to have one as a sole trader, but it makes drawings cleaner and bookkeeping easier. See our best business bank accounts for sole traders guide for the top free options.
How to reduce your tax bill
Since you’re taxed on profit, the only ways to reduce your tax are to reduce your taxable profit. The main levers:
-
Claim all allowable expenses — every legitimate business expense reduces your profit. See our allowable expenses guide for the full list.
-
Claim capital allowances — for equipment, machinery, and vehicles. See our car expenses guide for the vehicle-specific rules.
-
Make pension contributions — personal pension contributions get tax relief at your highest rate and reduce your adjusted net income. See our pension contributions guide.
-
Claim the trading allowance or expenses — if your expenses are under £1,000, the trading allowance gives a bigger deduction. See our trading allowance vs expenses guide.
-
Gift Aid donations — charitable donations extend your basic rate band and reduce tax. See our reduce your Self Assessment tax bill guide for how this works.
For the full strategic breakdown of all tax-reduction levers, see our reduce your Self Assessment tax bill guide.
How to plan for tax throughout the year
Because no tax is deducted when you take drawings, you need to set money aside yourself. The biggest mistake sole traders make is spending their profit and having nothing left when the tax bill arrives.
The 25-30% rule
As a rough guide:
- Profit under £50,270: set aside 25% for tax (20% income tax + 6% NI, minus personal allowance relief)
- Profit £50,270 – £100,000: set aside 30-35% (higher rate kicks in)
- Profit £100,000+: set aside 40%+ (personal allowance taper adds 20% effective rate on £100k-£125k)
Where to put it
Open a separate savings account or use a “pot” feature in your business bank account (Starling Spaces, Monzo Pots, Tide Pots). Transfer your tax percentage into it every time you take drawings or receive income. This money is not yours to spend — it’s HMRC’s, you’re just holding it.
Payments on account
Don’t forget that HMRC expects payments on account — advance payments towards next year’s tax, due on 31 January and 31 July. Each payment is half of your previous year’s tax bill. So in your first year, you’ll owe your full tax bill plus half again on 31 January — a 150% payment that catches many people out.
If you can’t pay on time, see our can’t afford your tax bill guide for setting up a Time to Pay arrangement.
Sole trader vs limited company: which pays more take-home?
This is the natural next question. The short answer: at profits above roughly £30,000-£40,000, a limited company usually gives more take-home pay because:
- Corporation tax (19% on profits up to £50,000) is lower than the combined income tax + NI rate (26%+)
- You can split your take-home pay between salary (up to the Personal Allowance, tax-free) and dividends (taxed at 10.75%/35.75%/39.35% in 2026/27, with a £500 allowance)
- Retained profits in the company are taxed at 19-25%, not at your personal rate
But a limited company comes with more admin: annual accounts, Corporation Tax returns, confirmation statements, payroll, and higher accountant fees. The tax saving has to be worth the extra cost.
For the full comparison with worked examples at different profit levels, see our sole trader or limited company guide. For the process of switching, see our sole trader to limited company guide.
The bottom line
Paying yourself as a sole trader is simple — you take drawings whenever you need money. But the tax isn’t simple: you’re taxed on your full profit regardless of what you withdraw, at income tax rates (20-45%) plus Class 4 National Insurance (6% or 2%). There’s no tax-efficient salary/dividend split, and leaving money in the business doesn’t defer tax.
The two things that will save you the most tax: claiming every allowable expense you’re entitled to, and setting aside 25-30% of your profit for tax from day one so you’re not caught short when the 31 January deadline arrives.
For the full comparison of self-employed business structures — sole trader, limited company, umbrella, and CIS — see our self-employed business structure hub.
New to self-employment? Start with our starting out as self-employed guide for the full beginner’s overview.