Paying yourself

Lesson 12 of 13 in our free Business Money Basics guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Business Money Basics is free for everyone.

Questions you'll answer

Mo (sole trader) made £30,000 profit and took £24,000 out for himself. What is he taxed on?

Illustration (2026/27): a director takes a £12,570 salary and £10,000 of dividends, with no other income. How much dividend tax is due?

Paying yourself the same modest amount each month and leaving a buffer in the business → Healthy. Steady pay for you, and the business can survive a quiet month.
Taking a big dividend before checking the company has profits to pay it from → Risky. Dividends can only come from available profits. Taking them otherwise breaks the rules and may have to be repaid.
Emptying the business account after a record month → Risky. The tax bill, VAT and a quiet month are all still coming.
Moving the tax pot share across before paying yourself → Healthy. Tax first, then you. January you says thanks.
Fact: “Dividends are paid from a company's profits after Corporation Tax.” — Corporation Tax comes off profit first; dividends come out of what's left.
Myth: “A sole trader can cut their tax bill by paying themselves a 'wage' from the business.” — A sole trader's own drawings aren't an expense. Wages paid to employees are, but you're not your own employee.
Fact: “Dividend tax rates for 2026/27 are 10.75%, 35.75% and 39.35%, after a £500 allowance.” — They rose by 2 percentage points from April 2026 (ordinary and upper rates).