Money Matters

How much should a freelancer put aside for tax?

There is no safe percentage that works for every freelancer. Use your current income, allowable expenses and wider circumstances to estimate the bill, then turn that estimate into a reserve you review during the year.

Published 3 November, 20268 min read Share

Key takeaways

• Start with an estimate of your own tax position rather than copying another freelancer’s percentage. 
• Base the estimate on taxable profit across the year and your wider income, not the value of one invoice. 
• Check whether payments on account could make a January payment larger than the bill you first expected. 
• Keep the reserve separate and review it monthly, quarterly or whenever your income changes materially. 
• If the reserve is short, confirm the amount and act early instead of waiting for the payment deadline. 

Freelance tax anxiety often comes from not knowing the number until late in the year. A strong month can make your savings look comfortable, while a quiet spell or an unexpectedly large Self Assessment payment exposes the gap. 

The practical question is not, ‘What percentage do other freelancers save?’

It is, ‘What might I owe, and how much have I already put towards it?’ 

This article focuses on UK self-employed sole traders. Limited companies have a different legal and tax position. Your circumstances can also affect the calculation, so treat the process below as general planning guidance rather than personal tax advice. 

The first bill can change your habits 

Róisín Killeen, a freelance writer who contributes to Sage Advice Ireland, remembers the end of her first full year of freelancing clearly. 

“The tax bill at the end of my first year working full-time as a freelance writer was a very unpleasant surprise and one I had not budgeted for properly. The lesson was hard-learned, and since then, I am disciplined about regularly sending payments to Revenue throughout the year, which are then offset against my final yearly tax bill. This ensures that I’m in a position to pay, without having heart palpitations!” 

Róisín deals with Ireland’s Revenue rather than HMRC, so UK freelancers should not copy the payment mechanism without checking the rules that apply to them. The underlying habit is still useful: deal with tax throughout the year instead of treating the deadline as the moment to start finding the money. 

There is no universal tax percentage 

Two freelancers can receive the same £2,000 client payment and need to reserve different amounts. One may earn everything from freelance work. Another may have a salary taxed through PAYE. Their allowable expenses, other income, student loan position, available allowances and previous tax payments may also differ. 

Where you live in the UK can matter too, and a sole trader should not apply limited-company tax assumptions to their own position. One invoice cannot carry all that information. 

A percentage can still be a useful transfer habit. Once you have estimated what you are likely to owe, you can convert the remaining requirement into a working percentage or regular amount. The estimate comes first; the percentage is simply a convenient way to fund it. 

Build your tax reserve in four steps 

Here are four easy steps to ensure you keep a good tax reserve amount.

1. Update your income and expense records 

Bring your freelance records up to date and estimate what you reasonably expect for the rest of the tax year. Include the different ways your creative work earns money, such as project fees, retainers, licensing or other commercial income. Treat possible commissions cautiously until they are confirmed. 

Keep invoices issued and payments received distinct. A sent invoice is not cash you can transfer into the reserve, while the point at which income enters your tax records depends on the accounting method you use. 

Record business costs, but do not assume every work-related purchase is automatically allowable. HMRC explains which expenses self-employed people may be able to claim. Allowable expenses can reduce taxable profit; they do not normally reduce your tax bill by the full amount you spent. 

2. Estimate your likely bill 

Use the updated figures to estimate your annual taxable profit and wider tax position. Include relevant employment or other income and tax already deducted, rather than calculating freelance work in isolation. 

You can use accounting software, work with an accountant or use HMRC’s Self Assessment tax-bill estimator. Check which tax year the tool covers and read its limitations. HMRC’s estimator does not account for every income type, payment or charge, so its result may need adjusting. 

Treat the result as a planning estimate. It should become more accurate as your records and forecast improve, but it is not a guaranteed final bill. 

3. Check payments on account 

Payments on account are advance payments towards a future Self Assessment bill, including Class 4 National Insurance where applicable. When they apply, they are normally paid in two instalments, due on 31 January and 31 July, and each is usually half the relevant tax owed for the previous year. 

They do not apply to everyone. Under current payments-on-account rules, they are generally not required if the previous Self Assessment bill was below £1,000 or more than 80% of the tax was collected outside Self Assessment. Your statement or online account should show whether you need to make them. 

The first January in which payments on account apply can be surprising because the amount due may include the bill for the year just reported and the first advance payment towards the next one. Check whether your estimate already includes that advance before adding it, or you could count the same amount twice. 

If you expect your income—and therefore your tax bill—to be lower than the previous year, you can ask HMRC to reduce your payments on account. However, if you reduce them too far and the eventual bill is higher than expected, HMRC will charge interest on the difference. 

4. Compare the estimate with your reserve 

Compare the provisional amount you expect to need with relevant tax already paid and the money already in your tax pot. The difference is your current reserve gap. 

• Start with the estimated Income Tax and National Insurance requirement. 

• Add expected payments on account only if they are not already included. 

• Subtract relevant tax payments or credits already reflected in your position. 

• Subtract the money already reserved. 

Write down what each figure includes. A single source of truth reduces the risk of adding or subtracting the same payment twice. 

A simple reserve example 

Imagine Maya is a self-employed illustrator. Her provisional Income Tax and National Insurance estimate is £4,000. She also expects a first payment on account of £2,000 that is not included in that estimate. Her tax pot currently holds £3,500. 

Her provisional requirement is £6,000. After subtracting the £3,500 already reserved, her current gap is £2,500. She can use that figure to plan transfers from confirmed client payments, then repeat the comparison when her income or expenses change. 

The figures illustrate reserve planning, not the tax due at a particular income level. Maya’s £4,000 estimate would need to come from an appropriate calculation using her actual circumstances. 

Keep the reserve separate and keep it current 

A separate account or clearly labelled bank pot makes the boundary between reserved money and spending money easier to see. Moving money when a client payment clears can also prevent the full balance from feeling available. 

The separate account does not decide how much you owe. Review the reserve monthly or quarterly, and whenever something material changes: a large contract arrives, work drops away, you start or leave employment, or your costs shift significantly. 

If the latest estimate suggests you have reserved too much, check that all relevant income, charges and forthcoming payments are included before treating the apparent surplus as spendable. 

If the reserve is already short 

Update the records and confirm the gap first. That replaces a vague sense of impending doom with a number you can plan around. You may be able to reduce it across the remaining months or the client payments you realistically expect to receive. 

If you cannot pay the bill in full, do not wait for the deadline to pass. HMRC says some people may be able to set up a payment plan based on what they can afford. Contact HMRC or an appropriately qualified adviser promptly and check the current conditions rather than assuming somebody else’s arrangement will apply to you. 

Final thoughts

The most useful answer to ‘How much should I put aside?’ is not a percentage. It is the current gap between a defensible estimate and the money already reserved. Keep that gap visible and update it before it becomes a deadline problem. 

This article provides general information for UK freelancers and is not personal tax, accounting or financial advice. Tax rules and individual circumstances vary and can change. Check current HMRC guidance or consult an appropriately qualified professional before acting. 

Frequently asked questions 

Is 20 percent or 30 percent enough to save for freelance tax? 

It may be enough for one freelancer and wrong for another. Test any percentage against an estimate based on your annual taxable profit, other income, circumstances and expected payments on account. Review it when those inputs change. 

Should I put tax aside from every invoice? 

Moving money whenever a client payment clears can be a useful habit, especially with irregular income. The amount should still come from your latest estimate rather than an arbitrary rule of thumb. 

Do allowable expenses reduce the amount of tax I owe? 

Allowable expenses can reduce the taxable profit used in the calculation. They do not usually reduce the final tax bill by the full cost of the purchase, and recording a cost does not automatically make it allowable. 

Why can a January Self Assessment payment be larger than expected? 

The amount may include a balancing payment for the year already reported and the first payment on account towards the following year. Check your Self Assessment statement and whether your estimate already includes both elements. 

How often should I update my tax reserve? 

A monthly or quarterly review is a practical baseline. Update it sooner after a significant change in income, expenses, employment or another part of your tax position. 

Browse more topics from this article

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