Read more: Starting A Business, Professional Payment Procedures, Ways For People To Give You Money, Late Payments & Not Getting Paid, Getting Paid Faster & On Time, Profit & Tax, Maintaining A Money Mindset
Coming up: Getting Paid As A Limited Company, Saving For Tax & Your Future. Sign up to get the next article in your inbox so you don’t miss any.
One of the beauties of being a sole trader is how easy it is for you to pay yourself.
Let’s find out what it’s like getting paid as a sole trader and get some money in your pocket, be it an elegant and stylish pocket, or one filled with sticky dinosaur figures and bits of tissue. (Mine has chocolate cake crumbs, ahem).
Are you ready to get ready, steady, paid?
What Is A Sole Trader?
A sole trader means you alone (sole) are in charge of your own business (trade) and you’re self-employed (sole trader).
It’s different to having a company as limited companies are a different legal entity. As a sole trader you and your business are legally together.
This has good sides (e.g. it’s easy to get your money and do your records) and can have bad sides if you need the protection of a limited company.
If you’re not sure which is right for you, contact me. It’s an important decision and not nearly as scary and complicated as people make out (and please ignore those professionals who scare you that sole trader means you’ll lose your house. All legal structures have their risks, including a limited company. Rant over).
For more information:
How Do You Pay Yourself As A Sole Trader?
It’s very simple.
You transfer money from your business bank account (or personal bank account used for business) into your personal bank account.
Use the word ‘drawings’ as your reference as that’s the word HMRC use.
It’s best practice to always put business income into your used-for-business bank account first as it helps to show you’re not trying to hide any income (e.g. withdraw money from your Paypal business account into your business bank account – and then pay yourself from your business bank account).
If you’re right at the beginning of your business and you only have a Paypal account, it’s ok to pay yourself straight out of your Paypal account. That’s better than paying for personal expenses with business money.
It’s not illegal if it’s messier than this, it’s just not a good idea. You need your affairs to be consistent and in order. Business money in, drawings out.
As a sole trader, it’s a lot simpler to pay yourself than if you have a limited company (read more about that here).
What About Tax?
You pay tax on your business profit on your tax return.
It’s your choice whether you take your profits as drawings (personal income). HMRC aren’t interested, honest!
Some freelancers keep most of their profits in their business bank account, some take it all for personal income. The only concern HMRC have is that you’ve done your tax return honestly and paid tax due. It’s up to you what you do with the money.
What Do I Do When I Want To Become A Limited Company?
Why you may want to change from sole trader to limited company:
- You’re earning £35k + and you’re going to be charged higher rate tax
- You started your business as a sole trader because it’s easier and now you’re ready to step up
- You started your business as a sole trader to get a tax refund with my advice and now you’re ready to step up
- You’re ready to seriously grow your business and your income
- You’ve bought a house or had children (e.g. your risk profile has changed)
- You want clients that require you to be a limited company (e.g. corporates, third sector)
It’s a good move to plan the change from sole trader as it can be a shock if you’re used to being able to take money when you need it and you suddenly have restrictions. It’s perfectly do-able and easier than you may feel 🙂
Contact me if you’re interested in understanding how having a limited company works and how you can easily and successfully understand the transition in your business and personal finances.
Getting Started Getting Paid As A Sole Trader
One of the biggest fears people have when starting a business is how they’ll get paid and it stops them making the change from their job or starting a business.
Don’t let that happen to you and your dreams.
The most important action you can take is to get started.
If you want support with understanding all this getting paid business, what’s right for you and a safe space to ask as many silly questions as you want, have a look at my sole trader or limited company coaching packages.
If you want easy to understand courses and guides with printable checklists and a sense of humour and mentions of cake, have a look in my shop.
Excited to get started getting paid as a sole trader?
This article is part of a series about getting paid as a business.
- Starting A Business
- Professional Payment Procedures
- Ways For People To Give You Money
- Late Payments & Not Getting Paid
- Getting Paid Faster & On Time
- Profit & Tax
- Maintaining A Money Mindset
- Getting Paid As A Limited Company
- Saving For Tax & Your Future
Sign up to get the next article in your inbox so you don’t miss any.