Q: I’m preparing to start up a new small business venture in the new year. Initially, it will just be myself, so I’ll be a sole trader. How should I go about paying myself?
A: The first thing to say here is that how you take pay from your new venture (and also how you’re taxed on it) depends on the business structure. But, as you say, you’ll be a sole trader for the foreseeable future.
There is a phrase here that’s important. It’s called a ‘drawing’. When you are a sole trader, it means you’re not separated financially from your business. At any time during the year, you can just pay yourself money that comes from the profits your business is making. That’s what a ‘drawing’ is.
It’s important to say here that you should be keeping an accurate, up-to-date record of each ‘drawing’ to ensure you have a precise picture of your profits and the tax you’ll need to pay when it comes to completing your Self-Assessment Tax Return. It’s also wise to be putting some of your earnings to one side in a separate pot (the best option is a dedicated business bank account) for the purpose of paying your tax.
There is of course also the question of how much you pay yourself. That’s entirely your choice, but you do need to strike a balance between what you and your household needs and what your business needs. Plus, you need to be able to cover any money owed through your business activity, debts or obligations to any suppliers you might use.
