If you are self-employed, no employer takes tax off before you get paid, so every client payment contains money that belongs to HMRC. This guide gives you the exact percentage of profit to set aside at eight income levels for 2026/27, plus a simple per-invoice system so January never catches you out.
Search intent: you want one reliable percentage to move into a tax pot each time you are paid, and you want to know it will actually cover your bill. You will find that number below, worked out from the official 2026/27 bands, not guessed.
How much tax should you set aside if you are self-employed in the UK?
Set aside a percentage of your profit, not your turnover. On 2026/27 rates, the exact bill is about 4 percent of profit at £15,000, 18 percent at £40,000 and 23 percent at £60,000. Adding a safety buffer takes most sole traders to 20, 25 or 30 percent.
Those exact figures surprise many people. The common advice to save 30 percent of everything is safe but often too high at lower profits, because your Personal Allowance shelters the first slice of profit completely. At higher profits the opposite happens: a flat 20 percent pot falls short once the 40 percent band bites.
The right approach is to start from your expected profit, find its exact effective rate in the table below, then round up to a tidy set-aside percentage. Rounding up is deliberate. It covers small forecasting errors, and any surplus stays yours after the bill is paid.
What you are actually setting money aside for
Your set-aside covers two charges, both calculated on profit and both collected through Self Assessment. Profit means your self-employed income minus allowable business expenses. You are never taxed on turnover.
First, Income Tax. For 2026/27 the standard Personal Allowance is £12,570. You then pay 20 percent on profit from £12,571 to £50,270, 40 percent from £50,271 to £125,140, and 45 percent above £125,140, per GOV.UK Income Tax rates and Personal Allowances. These bands apply in England, Wales and Northern Ireland. Scotland sets its own bands, covered below.
Second, Class 4 National Insurance. For 2026/27 you pay 6 percent on profits over £12,570 up to £50,270, and 2 percent on profits over £50,270, per GOV.UK self-employed National Insurance rates.
Class 2 needs no separate saving for most people. If your profits are £7,105 or more in 2026/27, Class 2 contributions are treated as having been paid, which protects your State Pension record at no extra cost. If your profits fall below £7,105, you can choose to pay voluntary Class 2 at £3.65 a week.
Add the two charges together and you get your marginal rate, the rate on each extra pound of profit. In the basic band it is 26 percent (20 percent tax plus 6 percent Class 4). In the higher band it is 42 percent (40 percent tax plus 2 percent Class 4). Your average rate is always lower than your marginal rate, because the first £12,570 is charged at zero.
Tip: Run your own profit figure through LancerBill’s UK Income Tax calculator once a quarter. Profit moves during the year, and a five minute check stops your set-aside percentage drifting out of date.
The exact bill at eight profit levels
Most guides on this topic stop at a vague range. The table below does the full calculation for you. Each row assumes a sole trader in England, Wales or Northern Ireland, with only self-employed income, the standard Personal Allowance, and no pension contributions or other reliefs. Rates last reviewed: October 2026.
| Annual profit | Income Tax | Class 4 NI | Total bill | Effective rate on profit | Sensible set-aside |
|---|---|---|---|---|---|
| £15,000 | £486.00 | £145.80 | £631.80 | 4.2 percent | 10 percent |
| £20,000 | £1,486.00 | £445.80 | £1,931.80 | 9.7 percent | 15 percent |
| £30,000 | £3,486.00 | £1,045.80 | £4,531.80 | 15.1 percent | 20 percent |
| £40,000 | £5,486.00 | £1,645.80 | £7,131.80 | 17.8 percent | 20 percent |
| £50,270 | £7,540.00 | £2,262.00 | £9,802.00 | 19.5 percent | 25 percent |
| £60,000 | £11,432.00 | £2,456.60 | £13,888.60 | 23.1 percent | 30 percent |
| £80,000 | £19,432.00 | £2,856.60 | £22,288.60 | 27.9 percent | 30 percent |
| £100,000 | £27,432.00 | £3,256.60 | £30,688.60 | 30.7 percent | 35 percent |
Read the table in two parts. The effective rate is what your bill really costs you as a share of profit. The set-aside column rounds that up and adds room for payments on account, explained below, and for profit landing higher than you forecast. If your profit sits between two rows, use the higher row until your year end figures are firm.
Notice how slowly the effective rate climbs through the basic band. You stay under 20 percent all the way to £50,270 of profit. The jump comes after that point, because each extra pound is taxed at 40 percent even though the Class 4 rate drops to 2 percent.
Worked example: a designer with 40,000 pounds of profit
Maya is a freelance designer. In 2026/27 her clients pay her £48,000 in total. Her allowable expenses are £8,000, covering software, a laptop, insurance and accountancy fees. Her profit is therefore £48,000 minus £8,000, which is £40,000. Tax is worked out on the £40,000, never on the £48,000.
Step 1, Income Tax. The first £12,570 is covered by her Personal Allowance, so tax on that slice is £0. The remaining profit is £40,000 minus £12,570, which is £27,430. All of it sits in the basic band, so £27,430 multiplied by 20 percent gives £5,486 of Income Tax.
Step 2, Class 4 National Insurance. The same £27,430 above the £12,570 threshold is charged at 6 percent. That is £27,430 multiplied by 6 percent, which gives £1,645.80.
Step 3, the total. £5,486 plus £1,645.80 is £7,131.80. As a share of profit, that is £7,131.80 divided by £40,000, an effective rate of 17.8 percent. As a share of the £48,000 her clients actually paid, it is 14.9 percent.
Step 4, the set-aside. Maya moves 20 percent of her profit into a tax account as she goes. On £40,000 of profit that builds a pot of £8,000. Her bill is £7,131.80, so she is covered with £868.20 to spare, before payments on account enter the picture.
If you want to sanity check your own margin after tax, LancerBill’s profit margin calculator shows what is left once costs are taken off each job, which makes your profit forecast, and therefore your set-aside, more honest.
Payments on account and your first January
Here is the part that catches new sole traders out. If your Self Assessment bill is more than £1,000, and less than 80 percent of your tax was collected at source, HMRC asks for payments on account. These are advance payments towards next year’s bill, as GOV.UK explains in its guide to your Self Assessment bill. Each payment is half of the tax you owed last year. They are due by midnight on 31 January and 31 July.
Return to Maya. Her bill for the year is £7,131.80. On 31 January she owes that full amount, plus her first payment on account for the following year: half of £7,131.80, which is £3,565.90. Her January payment is therefore £7,131.80 plus £3,565.90, a total of £10,697.70. A second payment on account of £3,565.90 follows on 31 July.
That January total is 150 percent of one year’s bill. It is not a penalty and it is not double taxation. The advance payments count towards next year’s bill, so the following January is smaller. But the cash still has to be there in your first year, which is exactly why the set-aside column in the table above sits above the bare effective rate.
Watch out: If your income drops, you can ask HMRC to reduce your payments on account. Reduce them too far and HMRC charges interest on the shortfall, so base any reduction on a realistic forecast, not on hope.
Should you set aside a percentage of profit or of each invoice?
Use profit as your base, then translate it into a per-invoice habit. If your expenses are 20 percent of turnover, profit is 80 percent of what clients pay you, so setting aside 25 percent of profit means moving 20 percent of every invoice into a separate tax account.
The conversion is simple: per-invoice percentage equals set-aside percentage multiplied by your profit margin. If you keep 70 percent of turnover as profit and your set-aside is 20 percent of profit, you move 14 percent of each invoice. If you keep 90 percent, you move 18 percent.
Worked per invoice, suppose a client pays you £2,500 and your expenses run at 20 percent of turnover. Your profit on that job is £2,000. Setting aside 20 percent of profit means moving £400 into your tax pot the day the payment lands. Doing it on payment day matters. Money left sitting in your main account gets spent, and rebuilding it in January rarely works.
Use LancerBill’s invoice generator to keep every payment documented in one place, then sweep your percentage across as each invoice clears. Our guide on how to invoice as a sole trader in the UK covers what each invoice must show.
A simple system that works every time you get paid
You do not need complex software. You need a separate account and a fixed routine.
Step 1: open a separate savings account or a dedicated pot in your banking app, named for tax only. While the pot waits for January, it can earn interest. Our guide to compound interest for freelancers shows how to put that waiting money to work. Step 2: pick your percentage from the table above, based on the profit you realistically expect this year. Step 3: every time a client payment lands, move that percentage of the profit in the payment across the same day. Step 4: review the pot every quarter against a fresh estimate from LancerBill’s UK Income Tax calculator, and adjust your percentage if your profit has moved bands. Step 5: leave the pot alone until HMRC is due.
Rule of thumb: if you are unsure which percentage to use, start at 25 percent of profit. It covers most basic rate sole traders with room to spare, and you can release the surplus to yourself after your return is filed.
Keep records as you go, not in a January scramble. If a bill does arrive bigger than your pot, acting early matters: our guide on what to do if you missed the Self Assessment deadline sets out the penalties and the fastest way to limit the damage.
What changes if you earn over 100,000 pounds or live in Scotland?
Two things change your percentage. In Scotland, Income Tax bands differ, so use Scottish rates for your estimate. Over £100,000, your Personal Allowance falls by £1 for every £2 above that level, which pushes your marginal rate sharply higher until the allowance is gone.
The allowance is fully gone at £125,140. Between £100,000 and £125,140 the maths is harsh: you pay 40 percent tax on each extra pound, and you also lose allowance, which adds an effective 20 percent more. Add 2 percent Class 4 and your marginal rate in that window is 62 percent. If your profit is heading into that range, set aside well above the table figures and take advice early, because pension contributions can sometimes restore some allowance.
Other income changes the picture too. If you also have a PAYE job, your employer already uses some or all of your Personal Allowance, and tax is deducted at source. Your self-employed percentage then needs to be higher, because the tax-free slice may already be used up. The same applies if you receive rental income or large amounts of interest. In those cases, calculate on your total income, not on your freelance profit alone.
Student loan repayments, if you have them, are also collected through Self Assessment and are not included in the table. Add your loan plan rate on top of your set-aside percentage if it applies to you.
Key takeaways
- Set aside a percentage of profit, never of turnover. Tax and Class 4 NI are both charged on profit.
- Exact 2026/27 effective rates run from 4.2 percent of profit at £15,000 to 30.7 percent at £100,000.
- Round your effective rate up: 20 percent of profit covers most basic rate sole traders, 30 percent suits higher rate profits.
- Payments on account mean your first January bill can be 150 percent of one year’s tax. Your buffer exists for this.
- Move the money on the day each client payment lands, into a separate account you do not touch.
- Over £100,000 of profit, the Personal Allowance taper pushes your marginal rate to 62 percent. Plan for it early.
For a worked employee comparison, see what £30,000 take-home pay looks like in 2026/27, broken down monthly, weekly and daily.
Frequently asked questions
How much tax should I set aside on 30,000 pounds of profit?
For 2026/27, profit of £30,000 gives Income Tax of £3,486 and Class 4 National Insurance of £1,045.80, a total bill of £4,531.80. That is an effective rate of 15.1 percent. Setting aside 20 percent of profit builds a pot of £6,000, which covers the bill and leaves a buffer for payments on account.
Do I set aside tax on my turnover or my profit?
Always work from profit. HMRC taxes your income minus allowable expenses, so a percentage of turnover would overstate your bill if your costs are high, and understate it if your costs are low. Convert your profit percentage into a per-invoice figure using your profit margin, then move that amount each time a client pays.
What percentage should a higher rate sole trader set aside?
At £60,000 of profit the exact bill is £13,888.60, an effective rate of 23.1 percent. At £80,000 it is 27.9 percent. A set-aside of 30 percent of profit covers both levels with a small buffer. Above £100,000, allow more, because the Personal Allowance taper raises your marginal rate to 62 percent in that window.
When do I actually have to pay the tax I set aside?
Your balancing payment is due by midnight on 31 January after the tax year ends. If your bill was over £1,000, payments on account towards the next year are also due on 31 January and 31 July, each equal to half of last year’s bill. Filing your return early does not make payment due any earlier, and it tells you the exact figures sooner.
What happens if I set aside too much?
Nothing bad. The money sits in your own account, not with HMRC, so once your return is filed and the bill is paid, the surplus is simply yours to keep or move into savings. Over-saving by a small margin is far easier to fix than a shortfall in January, which can mean interest charges and a payment plan.
To turn a percentage into an exact bill, work through our step-by-step guide to calculating your self-employed tax for 2026/27.
This guide is for general information only and is not financial, tax or legal advice.