Last updated: 16 October 2026
The question
I’m starting a new business in the new year and will be a sole trader. How should I pay myself?
Sole traders take drawings, not a salary
As a sole trader, you and the business are the same legal person. You do not pay yourself a salary through payroll. Instead, you take money out of the business bank account whenever you need it. These withdrawals are called drawings. Drawings are not a business expense and do not reduce your tax bill. You are taxed on your profit, whether you take it out or leave it in the business.
How sole trader profits are taxed in 2026/27
| Tax | Rate | On profit |
| Income tax | 0% | Up to £12,570 |
| Income tax | 20% | £12,571 to £50,270 |
| Income tax | 40% | £50,271 to £125,140 |
| Class 4 NIC | 6% | £12,571 to £50,270 |
| Class 4 NIC | 2% | Above £50,270 |
Class 2 National Insurance is no longer compulsory. If your profits are low, you can pay it voluntarily at £3.65 a week to protect your State Pension.
How much should I set aside?
A simple rule is to keep 20% to 30% of profit aside for tax, depending on your income. Put it in a separate savings account each time you are paid. Your first tax bill can be a shock because of payments on account.
Payments on account
If your tax bill is over £1,000, HMRC asks for advance payments towards next year’s tax: half on 31 January and half on 31 July. In your first year, you may pay a full year’s tax plus 50% of the next year’s on the same 31 January.
Worked example
Sophie starts a dog grooming business on 1 January 2026. Her profit for 2026/27 is £32,000 and she takes £2,000 a month in drawings. Her tax is:
- Income tax: 20% of £19,430 = £3,886
- Class 4 NIC: 6% of £19,430 = £1,166
- Total: £5,052
On 31 January 2028 she pays the 2026/27 balance plus her first payment on account for 2027/28 of £2,526, so £7,578 in total if she had no payments on account for 2026/27.
Practical tips
- Open a separate business bank account.
2. Pay yourself a regular amount you can afford, and top up if profits allow.
3. Keep receipts for all business costs.
4. Register for Self Assessment by 5 October after your first tax year.
5. Check whether you need to join Making Tax Digital: from April 2027 if your takings are over £30,000, and from April 2028 if over £20,000.
When a limited company may be better
Once profits reach about £40,000 to £50,000, a limited company paying a small salary and dividends can sometimes save tax, but it brings more admin and accountancy costs.
Frequently asked questions
Can I pay myself a wage through payroll?
No. A sole trader cannot be their own employee.
Can I pay my spouse a wage?
Yes, if they genuinely work in the business and the pay is reasonable.
Is the £1,000 trading allowance worth using?
Only if your costs are lower than £1,000.
Do I pay tax on money I leave in the business?
Yes. Tax is based on profit, not drawings.
Related: being self-employed, working out your taxable profits and sole trader registration.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with sole trader tax returns. See our sole trader accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
