How to pay yourself as a sole trader: Simple steps and tips

Published Wednesday 26 November 2025

Table of contents

• How sole traders pay themselves
• How much to pay yourself
• Records you need to keep
• Do you need a separate business bank account?
• National Insurance for sole traders
• Typical sole trader pay patterns
• How to pay yourself consistently
• Managing your sole trader finances
• FAQs on paying yourself as a sole trader

Key takeaways

• Take drawings from your business profits rather than paying yourself a salary, as sole traders and their businesses are legally the same entity, meaning you simply withdraw money when needed without payroll systems or employment contracts.

• Set aside 25-30% of your profits for tax obligations, as you'll pay income tax on all business profits plus Class 2 and Class 4 National Insurance contributions through your annual Self Assessment return.

• Maintain detailed records of every drawing by noting the date and amount, while tracking all allowable business expenses to reduce your taxable profit and simplify tax return preparation.

• Balance personal living costs with business cash flow needs by taking modest regular amounts for household expenses while leaving sufficient profits in the business to cover operating costs, taxes, and 30-90 days of emergency expenses.

How sole traders pay themselves

Sole trader payments are personal withdrawals from your business profits, not salaries. As a sole trader, you and your business are legally the same entity, so you simply take money out when needed.

If you haven’t set up a company or partnership, you’re automatically a sole trader. This affects how you pay yourself and how you’re taxed.

Taking drawings from your business

Sole traders pay themselves through drawings – personal withdrawals from business profits. Here’s how it works:

• Transfer money from your business account to your personal account when you need cash
• Skip salary paperwork – you don’t need payroll systems or employment contracts
• Pay tax on your total profits – all withdrawals count as profit and are taxed at year-end
• Set aside money for your tax bill – tax rates typically range from 20% to 40%, depending on your profits

The difference between drawings and expenses

Don’t confuse drawings with business expenses. Business expenses are the costs of running your business, such as buying stock, paying for software or covering travel costs. If you work from home, you may be able to claim a flat monthly rate for expenses, depending on your hours. You can deduct these from your income to reduce your profit and your tax bill. Drawings are the profit you take for personal use. You pay tax on this profit.

How much to pay yourself

How much you pay yourself depends on balancing personal living costs with business cash flow needs. Most sole traders take modest regular amounts, leaving profits in the business as a safety buffer.

Find a withdrawal rate that works for you and your business.

What the business needs

Keep enough cash in your business to:

• cover operating expenses by tracking what you owe and when payments are due
• set aside 20–40% of profits for income tax and National Insurance
• save 30–90 days of business expenses for emergencies
• reserve money for equipment, marketing or professional help

What the household needs

Your household budget should cover day-to-day living expenses and debt repayments such as mortgages. Make a plan for insurance and retirement, which your employer may have managed before you became self-employed.

Finding a balance

Some items in your home and business budgets are negotiable. Be ready to adjust, especially in the early days of your business.

Records you need to keep

Keep good records to stay organised, understand your business performance and make tax time less stressful. Track a few key things when you pay yourself.

Documentation for drawings

Keep a clear record of every drawing you take from the business. Note the date and the amount. This helps you track your income and makes it easy to separate personal funds from business money. This is especially important if you use one bank account for both.

Tracking business expenses

Track all your allowable business expenses. The more expenses you claim, the lower your taxable profit. Use accounting software to connect to your bank account and categorise transactions automatically.

Preparing for tax time

Record your income (drawings) and expenses throughout the year. This gives you everything you need for your Self Assessment tax return. You avoid a last-minute scramble to find receipts and bank statements.

Do you need a separate business bank account?

You don’t have to open a separate business bank account, but it makes managing your finances much simpler and clearer.

A dedicated account helps you:

• keep business and personal finances separate so you can track income and expenses easily
• see your business’s financial position at a glance
• simplify preparing your tax return
• build a financial history for your business if you want to apply for a loan in the future

National Insurance for sole traders

As a sole trader, you’re responsible for paying your own National Insurance contributions. You do this through your annual Self Assessment tax return. You’ll usually pay two types:

• pay Class 2 National Insurance contributions at a flat weekly rate if your profits are over a certain threshold
• pay Class 4 National Insurance contributions as a percentage of your profits over another threshold. For the 2025–2026 tax year, you’ll pay 6% on profits over £12,570 and 2% on profits over £50,270

These contributions count towards your state pension and other benefits. Rates and thresholds can change each tax year, so check the latest figures on the GOV.UK website.

Typical sole trader pay patterns

Most sole traders pay themselves conservatively – taking just enough to cover living expenses while leaving profits in the business as a cash buffer.

Typical payment patterns include:

• take regular modest amounts as weekly or monthly drawings for household costs
• leave remaining profits in the business for unexpected expenses
• make extra withdrawals when cash reserves build up

This approach helps you manage income fluctuations in self-employment.

How to pay yourself consistently

Pay yourself consistently to keep your personal finances stable and make better business decisions.

Best practices include:

• set a regular payment schedule with weekly or monthly drawings to help with household budgeting
• keep payment amounts predictable to reduce financial stress
• maintain business reserves so you don’t have to subsidise business expenses personally

Consistent payments and business cash reserves give you financial security and help you focus on your business.

Get professional guidance to optimise your payment strategy. An accountant or bookkeeper can help you calculate sustainable withdrawal amounts, set up tax planning and create long-term financial strategies.

Xero accounting software makes it easier to track your drawings, monitor cash flow and prepare accurate records for your accountant.

Managing your sole trader finances

Paying yourself correctly is a key part of managing your finances as a sole trader. When you understand how drawings work, budget for your business and personal needs, and keep accurate records, you build a strong financial foundation. This clarity lets you focus on what you do best – running your business.

Keeping track of drawings, expenses and overall cash flow is much simpler with accounting software. It gives you a clear view of your finances, so you can pay yourself with confidence. Try Xero accounting software for free to see how it can help you run your business, not just your books.

FAQs on paying yourself as a sole trader

Below are answers to common questions about paying yourself as a sole trader.

How much tax do you pay as a sole trader?

As a sole trader, you pay income tax on your business profits, though you may be able to use a tax-free trading allowance for your first £1,000 of income. The amount you pay depends on which tax band your profits fall into. You’ll also pay National Insurance contributions. It’s wise to set aside around 25–30% of your profit for your tax bill.

How much should I pay myself when starting out?

When you’re just starting, be conservative. Pay yourself enough to cover your essential living costs. Leave as much cash as possible in the business to cover expenses and help it grow. You can always increase your drawings as the business becomes more established.

Can I take drawings if my business makes a loss?

You can, but it’s better to wait until your business is profitable. Taking drawings when your business is not profitable increases its debt or reduces its capital. Focus on returning to profitability before taking drawings.

What happens if I take too much money from the business?

If you take too much money in drawings, you might leave the business without enough cash to pay its bills, suppliers or tax. This is called negative cash flow and can affect your business’s ability to operate. Make sure the business’s needs are covered first.