Can I pay myself a salary as a sole trader?

So, you can simply pay yourself money at any point from your business profits, which is called a 'drawing'. The profit is the surplus from the income generated after allowable expenses. It's important to keep a record of the money paid to yourself for your Self Assessment tax return, income tax and national insurance.

How do you pay yourself a salary as a sole trader?

You pay yourself based on personal drawings from the business, and you pay Income Tax and National Insurance Contributions based on the profits your business makes. So, it's important to keep a record of any personal drawings you take from the business to pay yourself.

How much money can a sole trader earn before paying taxes?

Trading profits

For profits up to £12,570, you won't have to pay any Income Tax. For profits between £12,571 and £50,270, you'll pay a 20% tax rate. Business profits between £50,271 and £125,140 must pay 40% Income Tax.

Should you pay yourself a salary or dividends?

Taking the full amount as dividends results in higher personal tax, and taking the full amount as salary leads to both high income tax and National Insurance contributions, making it the least efficient option overall.

How much can I pay myself without paying tax?

The personal allowance is currently set at £12,570 (as of 6 April 2024). This means, providing you have no other relevant income within the tax year, you can draw a salary up to this amount without the need to pay income tax.

How Do You Pay Yourself as a Sole Trader? (UK) | 2025

What is the most tax efficient way to pay yourself as a director?

Taking a small director's salary topped up with regular dividends from profits is usually the most tax-efficient way to pay yourself through a limited company.

What's the best way to pay yourself as a business owner?

Assuming there are no co-owners, you're free to write yourself a check or even take money out of the cash register for your personal use. In fact, if you're a sole proprietor, a draw is your only option for paying yourself.

How much dividend can I pay myself tax-free in the UK?

Each tax year, you get a tax-free dividend allowance. For the 2024/25 tax year, you can receive up to £500. Any dividend income above this is taxed based on your total income.

What is the most tax efficient salary in the UK?

In summary, the most tax-efficient way to pay yourself as a director in 2025/2026 is through a mix of salary and dividend payments. The most tax efficient salary uk directors can earn is either £5,000, £6.500 or £12,570 depending on the number of employees and your personal preference.

What is the minimum turnover for a Ltd company?

In terms of how much money your business 'needs', there's no minimum turnover requirement in any legal sense. However, even if you make nothing at all, you are still responsible for all reporting and compliance obligations.

Do I pay tax twice as a sole trader?

The tax you owe will be the final amount for the previous tax year, so if you file on 31st January 2023, it'll be for the last full tax year (2021/22). Sole traders whose tax bill is more than £1,000 for the year, must usually pay twice a year, once on 31st January and the second by 31st July.

What are the disadvantages of a sole trader?

Do I need an accountant as a sole trader?

Whilst sole traders do not legally need an accountant, it is generally a good idea to get one. This will ensure that your finances and tax affairs are all in order and correct in accordance with the law.

Can I pay my wife a salary as a sole trader?

If you're a sole trader:

You can pay them from your business account. Keep written records of the hours and amounts. You include the wages as an allowable expense in your Self Assessment.

How much national insurance do I pay as a sole trader?

For 2024/25, the Class 2 rate is £3.45 per week. For 2024/25 Class 4 national insurance is payable where annual profits exceed £12,570. Class 4 national insurance is payable on profits exceeding £12,570 at a rate of 6% until profits reach £50,270.

Does a sole trader need a business bank account?

While sole traders are not legally required to set up a business account, it can be a useful way to keep your business and personal finances separate and access support to help your business thrive.

What salary attracts 40% tax?

The 40% tax bracket is the 'higher rate' income tax band for those who earn between £50,271 - £125,140. There are four rates for income tax in England, Wales, and Northern Ireland, starting with the personal allowance, and then moving on to the basic rate, higher rate, and the additional rate. An error occurred.

Is it better to pay dividends or salary?

As mentioned above, dividends are paid from post-tax profits, whereas you would save corporation tax by declaring a salary or bonus first, but you would then attract personal tax of PAYE and employees National Insurance.

How do I pay myself a salary from my business?

When paying yourself, you need to do it in the most tax-efficient way – which is usually done by taking a combination of a low salary and dividends from your limited company. The salary will be paid to you as a director, in the same way as a regular employee.

How to avoid tax with dividends?

Make pension contributions

By making pension contributions from your business' profits, you can lower the amount of profit available for distribution as dividends, thereby reducing your dividend tax liability. Pension contributions can help you save for the future while providing immediate tax relief.

Can I pay myself entirely in dividends?

Paying yourself in dividends

Unlike paying salaries, the business must be making a profit (after tax) in order to pay dividends. Because there is no national insurance on investment income it's usually a more tax efficient way to extract money from your business, rather than taking a salary.

How to get money out of business tax free?

Taking money out of a company as salary and expenses

You can also claim for any business expenses you pay for out of your own pocket. You must keep receipts and complete claim forms and include the expenses in your self assessment tax return to avoid paying tax on this money.

Is it better to be self-employed or on payroll?

Self-Employment Advantages

Greater control over work schedule and client selection. You decide when, where, and for whom you work, allowing better alignment with your lifestyle. Potential to earn more based on effort and business growth. Unlike fixed salaries, your income can increase with your workload and success.

What is the most tax efficient way to pay yourself in an LLC?

To pay yourself through an owner's draw, write a check from the LLC to the business owner's personal bank account. Record the withdrawal as an owner's draw, along with the appropriate debit in the owner's business account. This periodic payment eliminates the need for payroll taxes and forms.