What Are Drawings?

If you’re a sole trader, you’ve probably heard the term “drawings” at some point. It sounds simple enough... Taking money out of the business, right?

Well… yes. But also not quite in the way many people think.

Drawings are one of those accounting terms that seem obvious until you start looking at profit, tax, and your bank balance. Let’s break it down!

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First things first: this is mainly for sole traders

Before we go any further, it’s worth saying, drawings apply to sole traders and partnerships. If you run a limited company, this works differently.

Company directors don’t take “drawings” in the same way. Instead, they pay themselves through:

• Salary (via payroll)

• Dividends (from profits)

• Occasionally a Director’s Loan Account

That’s because a limited company is a separate legal entity. The money belongs to the company, not directly to you. As a sole trader, though, you are the business which is where drawings come in.

So, what are drawings?

Put simply:

👉 Drawings are money you take out of your business for personal use. That’s it!

It could be:

• Transferring money to your personal account

• Paying for groceries from the business card

• Covering personal bills

• Taking cash out

If it’s for you (not the business), it’s a drawing.

Example: Meet Sarah

Sarah runs a small bakery as a sole trader. During the month:

• She earns £10,000 in sales

• She spends £6,000 on ingredients, rent, and other business costs

• She transfers £2,000 to her personal account

That £2,000 is drawings. Not wages. Not an expense. Just money she’s taken out of the business.

Here’s the bit that confuses people

Drawings are not a business expense. Which means:

👉 They do not reduce your profit

👉 They do not reduce your tax bill

This is where a lot of people get caught out.

Example

Let’s go back to Sarah:

• Sales: £10,000

• Expenses: £6,000

• Profit: £4,000

Even if Sarah takes out £3,000 as drawings, her profit is still £4,000 so that’s what she’ll pay tax on. Not what’s left in the bank.

Profit vs cash (the classic confusion)

This is where things often feel a bit unfair. You might think:

“I’ve taken £2,000 out... why am I being taxed on £4,000?”

Because tax is based on profit, not drawings. Profit is:

👉 Income minus expenses

Drawings are:

👉 What you choose to take out of that profit (or sometimes more… which is where things get interesting)

Can you take more than your profit?

Short answer: yes. But it doesn’t mean you’ve made more money.

Example

John makes £20,000 profit in a year but takes £25,000 out as drawings. Where did the extra £5,000 come from?

Usually:

• Previous savings in the business

• Dipping into cash flow

This is fine in the short term, but not sustainable long term. You can’t keep taking more than the business is making without something eventually giving.

Drawings vs salary

This is a big one. As a sole trader:

👉 You don’t pay yourself a salary

👉 You take drawings

There’s no PAYE. No payslip. No employer/employee relationship. You’re simply taking money from your own business.

Drawings vs expenses

Another common mix-up.

Expenses

• Costs for the business

• Reduce your profit

• Reduce your tax

Drawings

• Money for you personally

• Do not reduce profit

• Do not reduce tax

Example

• Buying flour for your bakery → expense ✔

• Paying your personal electricity bill → drawing ✔

Even if both come out of the same bank account.

Why drawings matter (even though they don’t affect profit)

Even though drawings don’t affect profit, they’re still important. They help you understand:

• How much you’re actually taking from the business

• Whether your business is generating enough to support you

• Whether you’re over-withdrawing

• Your overall cash position

Ignoring drawings can lead to:

• Cashflow issues

• Unexpected shortfalls

• That familiar feeling of “where has the money gone?”

Common mistakes to avoid

❌ Thinking drawings reduce your tax

They don’t. Only expenses reduce profit.

❌ Not tracking drawings properly

If everything is mixed together, it’s hard to see what you’re actually taking.

❌ Taking too much out

If drawings consistently exceed profit, the business may struggle.

❌ Treating drawings like wages

They’re not structured income, they’re withdrawals.

A simple way to think about it

A helpful way to picture it is:

👉 Your business makes profit

👉 That profit belongs to you

👉 Drawings are how you access it

But tax is calculated before you take it out not after.

Final thoughts

Drawings are simple in theory, but they often cause confusion in practice.

They’re not:

• A salary

• A business expense

• A way to reduce tax

They are simply:

👉 Money you take out of your business for yourself

Understanding that difference helps you:

• Make better financial decisions

• Avoid tax surprises

• Keep your business sustainable

Perhaps most importantly it helps explain why your bank balance and your profit don’t always match. In business, what you earn and what you take are two very different things.