How to Pay Yourself as a Sole Trader UK (2026 Guide)

One of the most confusing things about going self-employed is working out how to actually pay yourself. Unlike an employee who gets a salary, sole traders work differently — and understanding the basics will save you headaches at tax time.

The Short Answer

As a sole trader, you don't take a "salary" in the traditional sense. You take what's called a drawing — money you take out of your business for personal use. There's no separate payroll to run, no PAYE, no employer's NI.

Your profit is your income. HMRC treats everything the business earns (minus allowable expenses) as your personal taxable income.

How Drawings Work

A drawing is simply money you transfer from your business to your personal account. There are no rules about how much or how often — you can take £500 every week, £3,000 on the first of the month, or irregularly as cash comes in.

The key point: drawings are not an expense. They don't reduce your tax bill. You pay tax on your profit, not on what's left after you've paid yourself.

What Tax Will You Pay?

For 2025/26, as a sole trader you'll pay:

| Income | Tax Rate | |--------|----------| | Up to £12,570 (Personal Allowance) | 0% | | £12,571 – £50,270 | 20% (Basic Rate) | | £50,271 – £125,140 | 40% (Higher Rate) | | Over £125,140 | 45% (Additional Rate) |

You'll also pay Class 4 National Insurance:

• 6% on profits between £12,570 and £50,270
• 2% on profits above £50,270

And if your profits exceed £12,570, you'll pay Class 2 NI — a flat weekly contribution collected via Self Assessment.

Payments on Account

HMRC doesn't wait until the end of the year. Once your tax bill exceeds £1,000, you'll need to make payments on account — advance payments towards next year's bill.

These are:

• 50% of your previous year's tax bill due 31 January
• Another 50% due 31 July
• A balancing payment due the following 31 January if you earned more than expected

This catches many new sole traders off guard. Plan for it — set aside 25–30% of every invoice you receive.

Practical: How to Manage Your Money

A simple system that works for most freelancers:

1. Open a separate bank account for your business income and outgoings. Not legally required, but makes your Self Assessment much easier.
2. Set aside 25–30% of every payment you receive into a savings pot or separate account. This covers income tax and NI.
3. Pay yourself a regular amount on a fixed day — say, the 1st of each month. Treat it like a salary even if it's informal.
4. Keep records of all income and allowable expenses throughout the year.

Allowable Expenses

Before you pay tax, you can deduct genuine business expenses. Common ones for UK freelancers:

• Home office costs (proportion of rent, broadband, heating)
• Equipment and software
• Professional subscriptions
• Travel and mileage (45p per mile for first 10,000 miles)
• Training and CPD
• Accountancy fees
• Marketing costs

Keep receipts. HMRC can ask for evidence up to 5 years after your Self Assessment filing.

Self Assessment Deadlines

| Deadline | What's due | |----------|------------| | 5 October | Register for Self Assessment if newly self-employed | | 31 October | Paper tax return deadline | | 31 January | Online return + any tax owed | | 31 July | Second payment on account |

What About VAT?

VAT is separate from income tax. You must register for VAT if your taxable turnover exceeds £90,000 in a 12-month period. Below that, registration is optional.

If you do register, you'll charge VAT on your invoices and submit quarterly VAT returns to HMRC.

Quick Example

Suppose you earn £45,000 this year and have £5,000 of allowable expenses.

• Taxable profit: £40,000
• Personal Allowance: £12,570 → no tax
• Taxable at 20%: £27,430 → £5,486 income tax
• Class 4 NI at 6%: (£40,000 – £12,570) × 6% → £1,645
• Class 2 NI: approximately £179
• Total tax and NI: ~£7,310

On £45,000 gross income, you'd keep around £37,690 — a roughly 17% effective tax rate. Not as scary as it sounds.

Use an Invoice Tool That Keeps You Organised

Keeping clean records makes Self Assessment much less stressful. With Billdrop, you can:

• Create professional invoices in minutes
• Track which invoices are outstanding, paid, or overdue
• Store client details for repeat work
• Download PDF copies of every invoice

Create your first invoice free — no account needed →

Summary

• As a sole trader, you take drawings, not a salary
• You pay tax on profit (income minus allowable expenses)
• Set aside 25–30% of every payment for tax
• Watch out for payments on account — HMRC collects next year's tax in advance
• Keep records — Self Assessment is much easier with organised invoices and receipts