How Much Should Freelancers Save for Tax in the UK?

Direct answer

Estimate the liability rather than guessing a percentage. Work out expected taxable profit for the tax year, run it through the Self Assessment Tax Calculator to get an Income Tax and National Insurance estimate, then express that estimate as a share of profit and move that share into a separate account each time you are paid.

Estimated tax + National Insurance ÷ taxable profit = share of every payment to reserve

Taxable profit (turnover minus allowable expenses)

Income Tax bands the profit falls into

National Insurance for the self-employed

Other taxable income, such as employment or property

Personal circumstances and allowances

Possible payments on account towards the next year

Why a flat percentage misleads

Income Tax is banded, so the share of profit going to tax rises as profit rises. A sole trader with modest profit may reserve far less than a higher-rate freelancer, and someone with a salaried job alongside freelancing may need to reserve more than either, because the freelance profit sits on top of existing income.

Worked example

Sole trader, £45,000 turnover

Turnover £45,000, allowable expenses £5,000, so taxable profit is £40,000 with no other income. Run £40,000 through the Self Assessment Tax Calculator to get an Income Tax and National Insurance estimate, divide that estimate by £40,000, and reserve that percentage from every client payment. Re-run it whenever profit changes materially.

A practical reserve routine

Forecast profit for the tax year, updating quarterly
Estimate tax and National Insurance on that profit
Convert the estimate to a percentage of profit
Transfer that share into a separate savings account on every payment received
Re-check after any large invoice, rate change or new income source
Add headroom if payments on account may apply

Common mistakes and edge cases

Reserving against turnover instead of taxable profit
Ignoring National Insurance and reserving only for Income Tax
Forgetting a salaried job pushes freelance profit into higher bands
Spending the reserve during a quiet month with no plan to replace it
Setting a rate that never funded a reserve in the first place — check with the Freelance Rate Calculator
Scottish taxpayers: Income Tax bands differ, so estimates based on England, Wales and Northern Ireland rates will not match

Official sources

Check current Income Tax rates, self-employed National Insurance and Self Assessment deadlines on GOV.UK — the sources listed below are the ones this guide was checked against.

This guide provides general information and estimates only. Final tax liability depends on individual circumstances.

Frequently asked questions

Is setting aside 30% enough for tax?

A fixed percentage is a rule of thumb, not a calculation. Your liability depends on taxable profit, the Income Tax bands it falls into, National Insurance and any other income. Estimate it rather than assuming a flat share.

Should the reserve be based on turnover or profit?

Taxable profit — turnover minus allowable business expenses. Reserving against turnover usually overshoots, and reserving against drawings usually undershoots.

What about payments on account?

Self Assessment can require payments towards next year's bill as well as settling the current one, which means the first full year can involve more than one payment in the same period. Plan cash flow for that possibility.

Where should the money sit?

A separate savings account keeps the reserve out of day-to-day spending. Move a share across every time an invoice is paid rather than at year end.

PoundKit tools are for general information and planning only. They do not constitute accounting, tax, financial or legal advice. Please check with a qualified professional and refer to GOV.UK for official guidance.