Freelancer tax set-aside calculator
Setting aside a share of every invoice means the January bill is already covered. This shows the percentage and monthly amount for your profit, on UK rates, not the US rule of thumb.
How much to hold back
Set aside enough to cover two charges: income tax on your profit and Class 4 National Insurance. Divide that combined bill by your profit and you get the percentage of every invoice to move into a tax pot. For a basic-rate sole trader it usually falls below 20%, which is why the popular American advice to save 25 to 30% overshoots for most UK freelancers. Higher earners crossing £50,270 should set aside more, because the slice above is taxed at 40%.
The first year needs a bigger cushion. Your opening Self Assessment demand is roughly 150% of one year's tax, because it settles the year gone and adds the first payment on account towards the next. The first-year monthly figure above builds that extra half so the January bill does not leave you short. From the second year the timing settles and the steady monthly figure is enough.
Worked example
On a £45,000 profit the tax bill is about £8,432: income tax of £6,486 and Class 4 NI of £1,946. That is 18.7% of your profit, so moving £703 across each month covers it. In your first year, saving £1,054 a month instead builds the £12,648 that the first January demand asks for.
Common questions
How much should I set aside for tax as a UK freelancer?
Enough to cover income tax and Class 4 National Insurance on your profit. On a £45,000 profit that is about 18.7% of what you earn, roughly £703 a month. Setting aside a round figure like a fifth of every invoice is a safe habit for most basic-rate freelancers.
Is the US 25 to 30% rule right for the UK?
No. That rule bundles US federal and state taxes and self-employment tax, which do not match the UK system. Here the correct figure is the UK income tax bands plus Class 4 NI on your actual profit, which for many basic-rate sole traders is under 20%, not 30%.
Why set aside more in the first year?
Your first Self Assessment demand is about 150% of one year's tax, because it includes the first payment on account. To avoid a January shock, aim to build roughly one and a half years' worth of tax by then, which is why the first-year monthly figure above is higher.
Where should I keep the money?
A separate savings account works well, ideally one paying interest, so the tax money is not sitting in your current account where it may be spent. Move the set-aside percentage across every time you get paid rather than trying to find it all in January.
Does this include VAT?
No. This is income tax and Class 4 National Insurance only. If you are VAT registered, that is collected separately and set aside on top, because the VAT you charge was never your money to begin with.