How much to save for tax when you're self-employed

How much to save for tax: what you're saving for

As a sole trader, your tax is worked out on your profit: income minus allowable expenses. You pay it through Self Assessment. The main parts are:

Income Tax

Charged on profit above your Personal Allowance, at rising rates as profit goes up.

Class 4 National Insurance

Charged on profits over £12,570, at a lower rate than Income Tax.

Class 2 National Insurance

GOV.UK says it's treated as paid if your profits are £7,105 or more. Below that, you can choose to pay voluntarily at £3.65 a week to protect your State Pension record.

Student loan repayments

If you have a plan, these are collected through Self Assessment too.

VAT is separate. If you're VAT registered, the VAT you collect was never yours to keep, so it needs its own pot on top of how much to save for tax on profit.

How much to save for tax: the 2026 to 2027 rates

These figures are for the tax year 6 April 2026 to 5 April 2027, from GOV.UK's Income Tax rates and self-employed National Insurance rates pages.

Two things change the picture. First, GOV.UK says your Personal Allowance shrinks by £1 for every £2 of income over £100,000, and is gone at £125,140. Second, Income Tax bands are different in Scotland, so check GOV.UK's Scottish rates if you live there.

These rates show why there's no single answer to how much to save for tax. Each extra pound of profit is taxed at the rate for its band, so your overall percentage rises as profit grows.

How much to save for tax: three worked examples

The examples assume profit is your only income, you have the standard Personal Allowance, you live outside Scotland and you have no student loan. They are rounded illustrations, not a calculation of your bill.

Here's the working for £35,000. Taking off the £12,570 Personal Allowance leaves £22,430. Income Tax is 20% of that, £4,486. Class 4 is 6% of the same £22,430, £1,345.80. Together that's £5,831.80, or about 17% of profit.

At £60,000, part of the profit falls into the higher rate band. The first £37,700 above the allowance is taxed at 20% and the remaining £9,730 at 40%. Class 4 drops to 2% on that top slice.

Notice that the percentage is of profit, not income. If you set aside a share of every payment you receive, the share can be lower than these figures, because some of that money pays for expenses. Many people still round up for safety when they decide how much to save for tax.

Payments on account: the second-year surprise

This is the part most new sole traders miss when they plan how much to save for tax. GOV.UK's payments on account guidance says these are advance payments towards next year's bill, including Class 4 National Insurance. Each is half of last year's bill, due by 31 January and 31 July.

You don't have to make them if last year's bill was under £1,000, or if more than 80% of your tax was already paid another way, such as through PAYE.

Here's how it plays out for the £35,000 example, if 2026 to 2027 is your first year of trading:

1. 1

   5 April 2027: tax year ends

   Your bill for the year is £5,831.80. Nothing has been paid yet.

2. 2

   31 January 2028: the big one

   You pay the £5,831.80 for 2026 to 2027, plus a first payment on account of £2,915.90 towards 2027 to 2028. Total: £8,747.70.

3. 3

   31 July 2028: second payment on account

   Another £2,915.90 towards 2027 to 2028.

4. 4

   31 January 2029: balancing payment

   You pay whatever is left of your 2027 to 2028 bill, plus the first payment on account for the next year. From here the pattern settles.

So in your first January, you may need about one and a half times a year's tax. If you're working out how much to save for tax in year one, build that in. If your profit changes a lot, GOV.UK's payments on account guidance and an accountant can help you plan how much to save for tax.

Ways to decide how much to save for tax

There are a few common approaches to how much to save for tax. None is right for everyone.

Whichever you pick, tidy records make it far more accurate. Our bookkeeping for small business guide sets out a simple weekly routine, and the Making Tax Digital for sole traders guide explains the quarterly updates that started for some sole traders in April 2026.

Using tax pots in your business account

Once you know how much to save for tax, keeping that money out of sight helps you avoid spending it. Most app-based business accounts now offer a way to ring-fence it:

• Tide lists a Tax Saver alongside its Instant Saver. See our Tide review.
• Mettle says it offers a running tax estimate, a Tax Pot and autosave of a percentage of income.
• Monzo says Tax Pots come with its paid plans.
• Starling lists Spaces you can use for tax and overheads.
• Zempler says all plans include set-aside pots.

Check whether a pot earns interest and whether it's a separate savings account. You can compare business bank accounts to see the full feature lists.

Tide is our featured partner. We may earn commission from referrals. Disclosure

How much to save for tax: a checklist

• estimate this year's profit, not just income
• pick a percentage from the examples and set up an automatic transfer
• add extra in year one for your first payment on account
• keep VAT in its own pot if you're registered
• review how much to save for tax every quarter as your profit changes
• note 31 January and 31 July in your calendar

How much to save for tax: FAQs

Sources

• GOV.UK: Income Tax rates and Personal Allowances
• GOV.UK: self-employed National Insurance rates
• GOV.UK: understand your Self Assessment tax bill, payments on account
• Tide, Mettle, Monzo, Starling and Zempler's own product pages
• All sources checked 25 October 2026.