Draft - draught

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These two spellings should be distinguished in present-day British English, however illogical it may seem - they are simply variant spellings for a single word. Now, we have rules to keep the two spellings apart. If you want to write formal English well, you will follow the rules.

The two words sound exactly the same. Indeed, they were the same in older forms of English. (They are variant spellings of a past participle of the verb 'to draw'; see further draw (irrwgular verb).) They could be used interchangeably, whatever they meant. Nowadays, there is a clear division between their meanings.

  • Draft is used in British English for meanings connected with 'to draw' in its artistic sense (~ to depict or represent something by making marks (often with a pencil) on a flat surface (often paper)). So a [male] person who prepares technical drawings from which things may be made or built is a draftsman; and a [first] sketch of anything, whether drawn or written, is a draft. (A student may write 'a rough draft of my next assignment'.)
  • The participles of all other meanings of 'to draw' are spelled draught. So, the draught of a ship is the depth of water that she 'draws'; and draught beer is that which is drawn from barrels, rather than kept in bottles. The wind may draw draughts through a house, or its doors or windows. A draught horse draws carts.

(In American English, the rules are different. Most meanings are spelled draft. And the board game which is called draughts in British English (and spelled this way) is called 'checkers' in American English.)

Note that the financial term for money borrowed above the limit of an account is an 'overdraft': this is established by a customer who draws (or 'withdraws') money from the bank over the deposits made in it.
You may also want to see AWE's pages on draw (meanings), Draw - drawer and the (inflections of) draw (irregular verb).