How to Pay Yourself as a Sole Trader

godwin-pinto
February 20, 2026

The Sole Trader’s Guide to Getting Paid (Without the Tax Hangover!)

Hello fellow entrepreneurs!

One of the most common questions I get as a Chartered Accountant isn’t about complex depreciation or international tax treaties—it’s usually: “How do I actually pay myself, and how much of this money is actually mine to keep?”

If you’ve recently ditched the 9-to-5 to go solo, the “Wild West” of business banking can be scary. In the corporate world, a magical fairy (the payroll department) drops money into your account, already taxed. As a sole trader, you are the fairy. Let’s break down how to pay yourself and, more importantly, how to make sure HMRC doesn’t come knocking on your door to find an empty piggy bank.

1. Can I “Pay Myself” a Salary?

Technically, no. As a sole trader, you and your business are one legal entity. You don’t pay yourself a “wage” or “salary” in the traditional sense because all the profit the business makes is already yours.

Instead, you take “Drawings.” You can transfer money from your business account to your personal account whenever you like.

Pro Tip: Even though you aren’t legally required to, open a separate business bank account. It makes your life (and mine!) 100% easier when it comes to the end of the tax year.

2. The “Real World” Scenario: Meet Sarah

Sarah is a freelance graphic designer. In the 2024/25 tax year, she earns £50,000 in total revenue. After paying for her software, home office costs, and marketing, her allowable expenses total £10,000.

Sarah’s Total Profit: £40,000
Can she spend all £40,000? Absolutely not! If she does, she’ll have a very stressful January.

She needs to set aside money for Income Tax and National Insurance (NI).

3. How Much to Put Aside (The Cheat Sheet)

Tax rates can feel like a moving target. For the current (2024/25) and upcoming (2025/26) tax years, the thresholds have remained largely frozen, but National Insurance has seen some big changes!

Tax Rates at a Glance (UK Excl. Scotland)

Tax/NI Type	Threshold (2024/25 & 2025/26)	Rate
Personal Allowance	Up to £12,570	0%
Basic Rate Income Tax	£12,571 to £50,270	20%
Higher Rate Income Tax	£50,271 to £125,140	40%
Class 4 National Insurance	£12,570 to £50,270	6%
Class 4 (Higher)	Over £50,270	2%

Note: Class 2 NI has effectively been abolished for most from April 2024, though you still get the benefits if your profits are above £6,725! Refer to the HMRC website for the latest NI updates.

4. The “Rule of Thumb” Graph

To avoid a math headache, I always tell my clients to save a percentage of their monthly profit (Income minus Expenses).

Recommended Savings Percentage:

Profits up to £50,000: Set aside 25%
Profits £50,000 – £100,000: Set aside 40%
Profits over £100,000: Set aside 45%+ (because your Personal Allowance starts to vanish!)

Code snippet

pie title "Where Sarah's £40,000 Profit Goes"
    "Personal Spending (Drawings)" : 72
    "Income Tax & NI (Savings)" : 28

(Sarah should aim to save roughly 25-30% to be safe, covering her tax and a little extra for “Payments on Account.”)

5. Don’t Forget the “Sting in the Tail”: Payments on Account

If your tax bill is more than £1,000, HMRC assumes you’ll make the same next year and asks for half of next year’s tax in advance.

January 31st: You pay last year’s tax + 50% of next year’s estimate.
July 31st: You pay the other 50% of next year’s estimate.

This is why many first-year sole traders feel “hit” by a huge bill—it’s often 150% of what they expected! Check HMRC’s guide on Payments on Account to stay ahead.

The Chartered Accountant’s Final Word

Being a sole trader is about freedom, but that freedom comes with a bit of paperwork. My advice? Treat your tax savings like a “bill” you owe yourself. Move that 25% into a high-yield savings account the moment you get paid. You’ll earn a little interest, and on January 31st, you’ll be the only person in the coffee shop not crying over a spreadsheet.

Useful Links:

Running a business is not just about generating revenue — it’s about managing timing, risk, and obligations intelligently.

The entrepreneurs who thrive long-term are rarely the ones who earn the most early on. They’re the ones who respect the structure of the system and work with it rather than against it.

If you’d like tailored projections based on your expected profits, AccTek can help you build a clear tax plan so there are no surprises — only strategy.

Disclaimer: Taxes are specific to your individual circumstances (especially if you’re in Scotland or have other income). When in doubt, chat with your friendly neighborhood accountant!