Freelancers
How much should I put aside for tax?
The short answer
If your profit is under £12,570 and you don't have a job as well, there's usually no tax to pay at all. Above that, putting aside 20% of your profit is a safe rule of thumb. In your first year, make it around 25%, because your first January bill can include an advance towards the next year.
First, the three pots
Every time a client pays you, the money isn't really all yours yet. It helps to picture it going into three pots:
- Pot 1: Tax. Money you'll owe HMRC. Move it out the day you're paid, into a separate savings account, and try to forget it's there.
- Pot 2: Business. Software, kit, travel and everything else it costs to do your work.
- Pot 3: You. What's left is yours to spend. Enjoy it, guilt free.
This guide is about getting Pot 1 right.
Why it's a percentage of profit
You pay tax on your profit: what you earn minus your allowable expenses. Not on everything that comes in.
If setting aside a share of every payment is easier, that's fine too. It just means you'll usually save a little more than you need, which is a nice surprise in January.
What you'll actually pay
As a sole trader in England, Wales or Northern Ireland, there are two things to cover in the 2026 to 2027 tax year:
- Income Tax: nothing on the first £12,570 of profit, then 20% on the rest.
- National Insurance (Class 4): nothing on the first £12,570, then 6% on the rest.
Here's what that comes to on a few real profit levels, if working for yourself is your only income:
| Your profit for the year | Income Tax | National Insurance | Total to put aside | Share of your profit |
|---|---|---|---|---|
| £10,000 | £0 | £0 | £0 | nothing |
| £15,000 | £486 | £146 | £632 | about 4% |
| £20,000 | £1,486 | £446 | £1,932 | about 10% |
| £25,000 | £2,486 | £746 | £3,232 | about 13% |
| £30,000 | £3,486 | £1,046 | £4,532 | about 15% |
So 20% isn't what you'll owe. It's a comfortable cushion that covers you whatever your year looks like, with a little left over.
The first-year top-up
If your first tax bill is £1,000 or more, January brings a surprise. You pay the tax for the year that's finished, plus half as much again as an advance on the year you're in. That advance is called a payment on account.
So in your first year, aim to put aside around 25% instead of 20%. After that, you're paying as you go and 20% is plenty. Our Self Assessment year at a glance guide explains the dates.
A few things that change your number
- You also have a job. Your salary usually uses up your tax-free £12,570, so your self-employed profit is taxed from the first pound. Put aside 20%, or 26% if your side profit is over £12,570.
- You live in Scotland. Scotland has its own Income Tax rates, so your numbers will be a little different. Ask us and we'll work them out.
- You have a student loan. Repayments are collected through your tax return too, so you'll need a bit extra on top.
- Your profit goes over £50,270. The rates go up above this, so talk to us and we'll work out your number.
Make it automatic
The easiest way to stick to it is to stop thinking about it:
- Open a separate savings account just for tax.
- Every time you're paid, move your percentage across the same day.
- Don't touch it, even when that new laptop is calling.
If you're ever unsure whether you've saved enough, check before January rather than during it.
Ready to hand it over?
We'll work out your exact number, so you're never guessing and January never bites.