A simple system for setting aside tax each week

The biggest stress of being self-employed is the January tax bill. If you haven't saved for it, it can bankrupt you. Here is a foolproof system for making sure the money is always there.

The "Separate Bank Account" Rule

Never keep your tax money in your main spending account. It is too easy to mentally write it off as "available cash".

Open a dedicated savings account (ideally an easy-access account that pays interest) and call it "HMRC - DO NOT TOUCH".

Method 1: The Percentage Method (Best for variable income)

If your income fluctuates wildly from month to month, set aside a fixed percentage of every single invoice the day it gets paid.

• Earning under £30k? Save 20% of every invoice.
• Earning £30k - £50k? Save 25% of every invoice.
• Earning over £50k? Save 30-35% of every invoice.

This is cautious. You will almost certainly end up saving more than you need. Treat the leftover amount in January as an annual bonus.

Method 2: The Fixed Amount Method (Best for stable income)

If you earn roughly the same amount every week or month, calculate your estimated tax bill for the year, divide it by 52 (or 12), and set up a standing order to transfer that exact amount into your tax account.

Don't forget "Payments on Account"

If your tax bill is over £1,000, HMRC will ask you to make "Payments on Account". This means paying half of next year's estimated tax bill in advance, in January and July.

This catches many new freelancers out. Your first tax bill might be 150% of what you expected (100% for the year just gone, plus 50% for the current year). Over-saving in your first year is critical.

Using HMRC’s Budget Payment Plan

If large January and July hits do not suit your psychology, HMRC offers a Budget Payment Plan: you set up a weekly or monthly Direct Debit and HMRC credits what you pay against your next Self Assessment bill. You must be up to date on previous years to join, and you still need to file your return on time — the plan smooths cash flow; it does not replace filing.

Many sole traders combine approaches: automatic HMRC payments for a baseline amount, plus a separate savings account for anything volatile (a big contract finishing early, or expenses you forgot to model). The right split is whatever you will actually maintain for twelve months straight.

When income suddenly drops

If you have been saving 30% and work dries up, you do not automatically get to spend the pot — some of it may already be earmarked for July’s payment on account. Before lowering your percentage, open your HMRC account and check what instalments remain. Reducing payments on account is possible when you can reasonably show next year’s tax will be lower, but there is a formal process; guessing rarely ends well.

Conversely, when income spikes late in the tax year, your effective set-aside percentage for the remaining months should increase, not stay flat. A static rule of thumb is a starting point; the weekly calculator on this site exists precisely so you can recalibrate when the story changes.

Records that survive an enquiry

HMRC sometimes asks for evidence that money moved to a “tax” account really relates to tax planning rather than disguised drawings. Keep a simple ledger: date, client, gross invoice, amount transferred to savings, and running balance. Screenshots of bank transfers lined up with invoices tell a clearer story than a single lump figure in January.

You do not need expensive software at tiny scale — a spreadsheet with one row per invoice and a column for “tax sweep” is enough for many enquiries. The discipline matters more than the brand of tool.