How Much Should I Put Aside for Tax as a Self-Employed Tradesperson?
There's a version of late January that no self-employed tradesperson forgets. The tax return's done — late, at the kitchen table, with a brew going cold next to the laptop. HMRC tells you what you owe. And the number is bigger than the money in the account.
That moment is almost never a maths problem. It's a savings problem. The tax was always going to be that much. The trouble is nobody set the money aside as it came in.
When you were employed, you never had to think about it. Tax and National Insurance came off your wages before you ever saw them. The number on your payslip was yours to spend. The day you went self-employed, that quietly stopped being true — and nobody sends you a memo about it. Every invoice you get paid now has tax hiding inside it, and it's your job to take it out before you spend the rest.
So let's make it simple. Here's how much to put aside, why, and how to make sure the January bill is a non-event instead of a gut-punch.
The simple rule: set aside 30% of your profit
If you remember one thing from this article, make it this: move 30% of your profit into a separate pot the moment you get paid.
Thirty per cent is deliberately a little generous. For most basic-rate traders the real bill comes in lower than that, as you'll see in a minute. But a bit of headroom is exactly what you want, because the cost of saving slightly too much is nothing (it's still your money) and the cost of saving too little is a January you'll dread.
The word doing the heavy lifting there is profit.
Profit, not turnover — this is where people go wrong
You don't pay tax on everything your customers pay you. You pay tax on what's left after your legitimate business costs come off.
Say you're a sparky and you invoiced £60,000 over the year. You spent £14,000 on materials and £4,000 on van fuel, tools, insurance and your phone. Your profit isn't £60,000 — it's £42,000. That £42,000 is the number HMRC taxes.
This is why every receipt matters. Each pound of expense you can prove is a pound that never gets taxed. The cable, the consumer units, the van diesel, the public liability cover, the work boots, the share of your mobile bill you use for the business — all of it comes off before tax is worked out. If you're not sure what counts, we've written the plain-English list in what expenses can I claim as a self-employed tradesperson. The traders who save too much for tax are usually the ones not claiming everything they're entitled to.
So the rule, said properly: 30% of profit, where profit is your invoices minus your business costs.
If you'd rather not work out profit on the fly, there's a rougher shortcut that gets you to a similar place: put aside about 20–25% of every payment after you've taken out the big material costs on that job. It's blunter, but for a busy trader it's easier to actually do — and the one you'll actually do beats the perfect one you won't.
What you'll actually pay in 2026/27
Here's where the 30% comes from. As a sole trader in the 2026/27 tax year, two things come out of your profit: income tax and Class 4 National Insurance.
The first £12,570 of profit is tax-free — that's your personal allowance. After that:
| On profit between | Income tax | Class 4 NIC | Combined | |---|---|---|---| | £0 – £12,570 | 0% | 0% | 0% | | £12,570 – £50,270 | 20% | 6% | 26% | | £50,270 – £125,140 | 40% | 2% | 42% | | Over £125,140 | 45% | 2% | 47% |
Notice the combined column. On the basic-rate band, every extra pound of profit costs you 26p once you count National Insurance — not just the 20p people remember. That's the bit that catches traders out.
But because the first £12,570 is free, your average rate across all your profit is lower than the marginal rate. Let's run the electrician on £42,000 profit:
- Income tax: (£42,000 − £12,570) × 20% = £5,886
- Class 4 NIC: (£42,000 − £12,570) × 6% = £1,765.80
- Total: £7,651.80
That's about 18% of their £42,000 profit. So why did I tell you to save 30%?
Two reasons. First, the maths above is for someone comfortably inside the basic-rate band — the closer your profit creeps toward £50,270, the more of it gets taxed and the higher your average climbs. Second, and bigger, is the thing nobody warns first-year traders about.
The first-year trap: payments on account
This is the one that turns a manageable bill into a panic. It catches almost everyone in their first year, and it's worth understanding before it happens to you.
If your tax bill comes to more than £1,000, HMRC doesn't just want this year's tax. It also wants you to start paying towards next year's tax, in advance, in two instalments called payments on account. Each one is half of your most recent bill.
Walk through it with our electrician. Their first full year of trading is 2025/26, and the £7,651 of tax for it is due on 31 January 2027. But because the bill is over £1,000, on that same day they also have to pay a first payment on account for 2026/27 — half of £7,651, so about £3,826. Then another £3,826 on 31 July 2027.
So that first January, instead of one bill of £7,651, they're staring at £11,477 due at once. A year and a half of tax, landing together.
It isn't a penalty and it isn't a mistake. From then on you're simply paying tax closer to when you earn it, and future Januarys feel lighter because you've already part-paid them. But if you've only saved for one year's tax, that first January will hurt. Saving 30% from day one is how you walk into it ready instead of blindsided. If your real rate is 18%, that extra cushion is precisely what absorbs the payment-on-account hit.
CIS subbies: you may have already paid it
If you work as a subcontractor under the Construction Industry Scheme, your sums look different — usually in your favour.
Your contractor already takes 20% off the labour on your invoices and sends it straight to HMRC before you're paid. That's an advance on your tax bill, deducted at source, a bit like being back on PAYE. By the time you file your return, a lot of your tax — sometimes all of it — has already gone.
And here's the kicker most subbies don't realise: because the 20% is taken off your labour without any account for your expenses, the deductions often add up to more than you actually owe. A huge number of CIS subcontractors are owed a refund every year and never claim it. We go through exactly how this works in CIS explained for subcontractors. If most of your work is CIS, your tax pot can be much smaller than 30% — or you may be putting money aside for a bill that's already covered.
One thing that isn't yours: VAT
A quick warning, because it trips people up. If your turnover passes £90,000 you have to register for VAT, and then you add 20% VAT to your invoices and pass it to HMRC every quarter.
That VAT is never your money. Don't let it sit in your account feeling like profit and don't fold it into your 30% tax pot — it's a separate liability with its own deadlines. Keep VAT in its own pot entirely. Plenty of newly VAT-registered traders have spent the VAT by mistake and had a nasty quarter. It's the same lesson as income tax: money that isn't yours should never be sitting where you can spend it.
Where to keep it — and why a separate pot matters
The maths is the easy bit. The discipline is the hard bit.
The fix is to make the tax money invisible. Open a second account — a free current account or a savings pot inside your banking app — and the moment a customer pays you, move your tax percentage straight across. Out of sight, out of mind. You can't accidentally spend money you can't see.
Do it per payment, not once a year. Trying to find a lump sum for tax in January, out of one pot you've been living off all year, is how people end up on a payment plan with HMRC. Skimming 30% off each invoice as it lands is painless by comparison — you never had the money long enough to miss it. As a bonus, park it somewhere that pays a bit of interest and the taxman effectively tops up your savings.
The hard part isn't the rule — it's knowing your number
Everything above is simple to say and genuinely hard to do consistently when you're on the tools from seven in the morning. "Set aside 30% of profit" assumes you know, at any given moment, what your profit actually is. Most tradespeople don't — not because they're daft, but because the figure lives across a glovebox full of receipts, a banking app, and a memory of which invoices have actually been paid.
That's the real problem. Not the percentage — the running total.
It's the reason we built TradesOffice the way we did. When your invoices and your receipts are captured as the work happens — a photo of the Screwfix receipt, a quick message to raise an invoice — the profit figure keeps itself up to date, and the tax you should be setting aside is a number you can see rather than a January surprise. Amy keeps a running tax estimate so the pot is never a guess. The records that make it possible are the same ones your accountant needs at year-end and the same ones Making Tax Digital now expects you to keep — so you get the tax clarity as a byproduct of admin you were going to have to do anyway.
You don't need software to follow the 30% rule. A second bank account and a bit of discipline will do it. But if the discipline is the part that's never quite happened, that's exactly the gap worth closing — because the cost of not closing it is the January you already know too well.
Frequently asked questions
How much should I put aside for tax as a self-employed tradesperson? A safe, simple rule is 30% of your profit — what's left after your business costs come off your invoices. For a basic-rate trader the real bill is closer to 20% of profit once the £12,570 personal allowance is counted, so 30% gives you a cushion for tipping into higher-rate tax and for the first-year payment-on-account hit. If you'd rather track one number off every payment, 20–25% of each invoice after big material costs gets you to roughly the same place.
Do I pay tax on my turnover or my profit? Profit only. You're taxed on what's left after legitimate expenses — materials, tools, van, insurance, phone and the rest. Invoice £60,000, spend £18,000 running the business, and you're taxed on £42,000. Claiming every expense you're entitled to directly lowers the bill.
Why is my first self-assessment tax bill so big? Because of payments on account. If your bill is over £1,000, that first January you pay last year's tax in full plus half of it again towards next year, with another half due 31 July. It feels like a year and a half of tax at once. It's not a penalty — just HMRC collecting tax closer to when you earn it — but it's a shock if you didn't save for it.
I'm a CIS subcontractor — how much should I save? Often less, and sometimes nothing — you may even be owed a refund. Your contractor already deducts 20% from your labour and pays it to HMRC in advance. Because that ignores your expenses, the deductions frequently add up to more than you owe. You still file a return, but your tax pot can be smaller.
Do I include VAT in my tax savings? No — keep VAT completely separate. If you're VAT-registered, the VAT you charge was never yours; it has its own quarterly deadlines and its own pot. Folding it into your income-tax savings is how people accidentally spend money they owe HMRC.
Knowing what to set aside is easy. Knowing your real number every week — without sitting down to do the books — is the hard part. That's what Amy is for: send a voice note or a photo of a receipt, and your invoices, expenses and running tax estimate keep themselves up to date in the background. No app, no new number, no forms.
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