How Much to Save for Tax as a UK Freelancer
Nobody takes tax out of your freelance income before it reaches you, so the bill arrives months later, often in one large lump. Saving the right amount as you go is the difference between a calm January and a stressful one. This guide shows how to estimate what to put aside using the 2026/27 rates, why your first year can need more than you expect and how to build a simple saving system. It is general information, not tax advice; rates and thresholds change every tax year, so check GOV.UK or an accountant.
Key takeaways
- As a sole trader, you pay Income Tax and Class 4 National Insurance on your profit, usually through Self Assessment.
- Base your savings on profit (income minus allowable expenses), not on everything clients pay you.
- Your effective rate rises as profit rises, so a single fixed percentage may be too low for higher earners.
- In your first year that payments on account apply, you may owe a full year's bill plus an advance payment for the next year.
- Move a percentage of every payment into a separate savings account the day it arrives.
Employees rarely think about saving for tax because PAYE takes it before payday. When you go freelance, that safety net disappears. Your clients pay you in full, the money sits in your account, and it is very easy to treat all of it as yours. Then the Self Assessment bill lands on 31 January, sometimes alongside an extra payment you did not know about.
The fix is not complicated. You need a reasonable estimate of what you will owe, a separate place to keep it and a habit of moving money there every time you are paid.
What you are saving for
As a sole trader in England, Wales or Northern Ireland, the main taxes on your business profit are Income Tax and Class 4 National Insurance. Both are calculated on your taxable profit for the tax year, which runs from 6 April to 5 April. The current tax year is 6 April 2026 to 5 April 2027.
Income Tax (England, Wales and Northern Ireland, 2026/27)
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The Personal Allowance falls by £1 for every £2 of adjusted net income over £100,000, and is zero at £125,140. Scotland has different Income Tax bands and rates, so if you live in Scotland, use the Scottish figures on GOV.UK instead.
Class 4 National Insurance (2026/27)
Class 4 is 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. If your profits are £7,105 or more, Class 2 is treated as paid, which protects your National Insurance record, so you do not pay it. Most people pay National Insurance through their Self Assessment bill.
Depending on your circumstances, you may also need to save for other items that are paid through Self Assessment, such as student loan repayments or Capital Gains Tax. Those are paid with the 31 January balancing payment rather than through payments on account.
Estimate your bill: two worked examples
The examples below use the 2026/27 rates above and are deliberately simplified. They assume profit is your only income, you live in England, and they ignore student loans, pension contributions, other income, Scotland and any other reliefs. Your real bill may differ.
Example: £40,000 profit
Imagine a freelance illustrator with a profit of £40,000. Income Tax: £40,000 minus £12,570 leaves £27,430 taxed at 20%, which is £5,486. Class 4 National Insurance: £27,430 at 6% is £1,645.80. The total is about £7,132, or roughly 18% of profit. This is a simplified, made-up example.
Example: £70,000 profit
For example, a contractor with a profit of £70,000. Income Tax: £37,700 in the basic rate band at 20% is £7,540, plus £19,730 above £50,270 at 40%, which is £7,892, so £15,432 in total. Class 4: £37,700 at 6% is £2,262, plus £19,730 at 2%, which is £394.60, so £2,656.60. The total is about £18,089, or roughly 26% of profit. Again, simplified and invented for illustration.
Notice how the share rises with profit. That is why a single "save 20%" rule can work for one freelancer and leave another short. A practical approach is to work out an estimate for your expected profit, round it up a little for safety and use that percentage.
Pro tip
As a rule of thumb, many freelancers save a percentage of everything they receive rather than of profit, because it is easier to apply. If your expenses are low, that works. If you have high costs, saving a percentage of income will overshoot, which is safe but ties up cash. Review the figure every few months against your actual profit.
The first-year trap: payments on account
This is the part that catches most new freelancers. Once your Self Assessment bill reaches a certain size, HMRC asks you to pay toward next year's bill in advance through payments on account.
- There are two payments on account, each normally half of last year's tax bill (including Class 4 National Insurance).
- They are due on 31 January and 31 July.
- You do not need to make them if last year's bill was under £1,000, or if more than 80% of your tax was already paid at source, for example through PAYE.
- Any difference is settled with a balancing payment on 31 January.
The result is that, in the first January when payments on account apply, you may pay the full bill for the previous year plus the first payment on account for the current year. That can be roughly one and a half times your annual bill in one go, followed by another payment in July.
Example
Imagine your simplified bill for your first full year of trading is £6,000. If payments on account apply, by 31 January you would owe that £6,000 plus a first payment on account of £3,000 toward the next year, so £9,000. On 31 July you would pay another £3,000. These are made-up figures to show the pattern.
If you expect your profit to fall, you can apply to reduce your payments on account. Be careful: if you reduce them too much and your bill turns out higher, you will owe the difference plus interest.
Build a simple tax saving system
Knowing the percentage is only half the job. The other half is making the transfer automatic enough that you do not skip it when money is tight.
- Open a separate savings account for tax. Keep it apart from your business current account and personal savings, ideally one you cannot spend from by card.
- Pick your percentage. Use your estimate based on expected profit, rounded up. Adjust in your first year to cover payments on account.
- Transfer on every payment. When a client pays, move the percentage straight away. Some banking apps can do this automatically.
- Check quarterly. Compare your actual profit so far with what you have saved. Top up or ease off as needed.
- Leave it alone. Treat the account as HMRC's money. Any surplus after you pay the bill is a bonus.
Common mistake
Saving for the bill but forgetting VAT. If you are VAT-registered, the VAT you charge clients is not your money either. Keep it separate from your Income Tax pot, because VAT returns are usually due far more often than Self Assessment.
Things that change how much you need
Your estimate is a starting point. Several things can push the real figure up or down:
- Other income. Employment income, rental income or savings interest uses up your Personal Allowance and bands first, so your freelance profit may be taxed at a higher rate.
- Pension contributions. Personal pension contributions get tax relief, and higher rate taxpayers can claim extra relief through Self Assessment, which can reduce your bill.
- Student loans. If you have one, repayments are calculated through Self Assessment and paid with the balancing payment.
- Income near £100,000. The tapering of the Personal Allowance means income in this range is taxed at a high effective rate.
- Scotland. Different Income Tax bands apply.
Your tax saving action plan
- Estimate this year's profit from your bookkeeping so far
- Work out a rough Income Tax and Class 4 figure using the current rates
- Check whether payments on account will apply next January
- Open a dedicated tax savings account
- Set a percentage and transfer it every time a client pays
- Review your estimate every quarter
- Keep VAT separate if you are registered
Frequently asked questions
Should I save a percentage of income or of profit?
Tax is calculated on profit, so a percentage of profit is more accurate. Saving a percentage of income is simpler and safer if your expenses are low. Either works as long as you review it against your actual numbers during the year.
Can I use the HMRC online account to check what I owe?
Your HMRC online account shows bills and payments due once you have filed. Before you file, you need to estimate yourself, either with bookkeeping software that projects your tax or with the rates on GOV.UK.
What happens if I cannot pay my bill in full?
Contact HMRC as early as possible. You may be able to set up a payment plan. Late payment can lead to penalties and interest, so it is better to act before the deadline than after.
Related reading
The bottom line
Work out a realistic tax percentage based on your expected profit, round it up, and move that share of every payment into a separate account the day it arrives. Plan ahead for payments on account, especially in your first year, and review your estimate each quarter.
This is general information, not tax advice. Tax rates, bands and thresholds change every tax year, and Scotland has its own Income Tax bands, so check GOV.UK or HMRC, or ask an accountant to help you set the right figure.
