How Much Tax Do I Pay Self Employed Uk
One of the biggest financial shocks for new sole traders is receiving a tax bill they were not prepared for. Unlike employees who have tax deducted automatically through PAYE, self-employed people receive their income in full and must set money aside themselves. Get this wrong, and you could face a bill you cannot pay, with interest and penalties on top.
This guide tells you exactly how much to set aside and how to make it a habit.
Why self-employed people get caught out
When you start as a sole trader, every payment feels like income. A client pays you £3,000, and it lands in your account. It feels like £3,000. But a portion of that money was never really yours, it belongs to HMRC.
The problem is that the Self Assessment deadline is up to 20 months after you first earned that money. By the time the bill arrives in January, many sole traders have already spent it.
The fix is simple: treat tax as a cost of doing business and set it aside as you earn.
How much should you set aside?
There is no single figure that works for everyone because your tax bill depends on your profit level, your location, and your expenses. But as a working guide:
| Annual Profit | Suggested Set-Aside |
|---|---|
| Up to £20,000 | 20–25% of income |
| £20,001 – £40,000 | 25–30% of income |
| £40,001 – £60,000 | 30–35% of income |
| Above £60,000 | 35–45% of income |
These percentages account for both Income Tax and National Insurance. They are deliberately on the conservative side, if you set aside too much, you get money back. If you set aside too little, you face a shortfall.
The most accurate way to know your number is to use a tax calculator. Our self-employed tax calculator gives you a weekly and monthly set-aside figure based on your actual income, expenses, and location.
A practical example
Suppose your taxable profit for 2025/26 is £35,000. Based on the current HMRC rate, your total tax and NI bill would be approximately £6,800.
To cover that comfortably:
- Monthly: set aside £567
- Weekly: set aside £131
If you receive irregular income, as most sole traders do, set aside your percentage from every payment rather than a fixed monthly amount. This way, your savings automatically scale with your earnings.
Where to keep your tax savings
Keep your tax savings in a separate account from your day-to-day business account. This serves two purposes:
- You are not tempted to spend it
- You earn interest on money that is sitting there
A high-interest easy-access savings account works well; the money needs to be accessible by 31 January, but it earns interest in the meantime. Some sole traders use a business savings account specifically labelled for tax.
Do not keep it in your current account. Out of sight, out of mind is the right approach here.
What about payments on account?
Once your Self Assessment bill exceeds £1,000, HMRC requires you to make payments on account, advance payments towards the following year's bill. These are due:
- 31 January — 50% of last year's bill (alongside the current year's balance)
- 31 July — the remaining 50%
This catches many sole traders by surprise in their second year of trading. Your January bill is suddenly 150% of what you expected, the current year balance plus the first payment on account for next year.
Factor this into your set-aside from year one. If you are consistently profitable, increasing your set-aside percentage slightly gives you a buffer for payments on account.
The habit that makes it easy
The simplest system: every time a payment hits your account, transfer your set-aside percentage immediately before you spend anything else. Treat it like paying yourself last.
Some sole traders set up a standing order on payday. Others do it manually as each invoice is paid. Either works, consistency is what matters.
FAQ: How Much Tax Do I Pay
What happens if I cannot pay my tax bill?
Contact HMRC before the deadline, not after. HMRC can arrange a Time to Pay agreement that lets you pay in instalments. Interest still accrues, but you avoid the late payment surcharge of 5%, which kicks in 30 days after the deadline.
Do I set aside based on income or profit?
Profit is your income minus your allowable expenses. If you earn £50,000 but have £10,000 in legitimate expenses, your taxable profit is £40,000, and that is what you base your set-aside on.
Should I set aside for VAT separately?
Yes. If you are VAT registered, VAT collected from clients is never your money. Keep it entirely separate from your income and your tax savings. It goes back to HMRC every quarter.
Can I reduce my bill by making pension contributions?
Yes, pension contributions reduce your taxable income, which reduces both your Income Tax and Class 4 NI. This is one of the most tax-efficient ways to reduce your bill while also saving for retirement.
This article is for informational purposes only and does not constitute financial or tax advice. Figures are based on 2025/26 HMRC rates. Always consult a qualified accountant for advice specific to your circumstances.
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