Quick answer
Many freelancers set aside 20% to 30% of each payment for tax. The right figure depends on profit: basic-rate taxpayers pay 20% Income Tax plus 6% Class 4 National Insurance above the allowances, and higher earners pay more.
Updated October 2026 · Figures based on 2025/26 rates
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The basics for 2025/26
You pay no Income Tax on the first £12,570 of income. Profits up to £50,270 are taxed at 20%, up to £125,140 at 40% and above that at 45%. Class 4 National Insurance is 6% between £12,570 and £50,270 and 2% above.
A worked example
With £40,000 profit, taxable income is £27,430 and Income Tax is about £5,486. Class 4 NI is about £1,646. Total roughly £7,100, or about 18% of profit. The fuller table below shows how this scales with income.
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A simple saving habit
Move a fixed percentage into a separate savings account every time you are paid, and adjust after your first bill. The habit matters more than the exact percentage at first — even 25% from day one beats scrambling in January.
Do not forget payments on account
Your first bill may include a payment towards next year, so budget for a larger first January. These payments on account are HMRC’s way of collecting next year’s tax in advance, and they catch out many first-time filers.
What goes into a freelancer’s tax bill
A freelancer’s bill is made up of income tax and Class 4 National Insurance on taxable profit, and possibly a student loan repayment or the High Income Child Benefit Charge. Profit is income less allowable expenses, not what you invoice. The first £12,570 of income is covered by the Personal Allowance. Basic rate income tax is 20% up to £50,270, 40% up to £125,140 and 45% above, using England, Wales and Northern Ireland bands. Scotland has its own bands. Class 4 National Insurance is 6% on profits between £12,570 and £50,270 and 2% above that.
Compulsory Class 2 National Insurance was abolished in April 2024. If your profits are at or above the Small Profits Threshold of £6,845, you are treated as having paid it for credit purposes. Below that, you may choose to pay voluntary Class 2, about £3.50 a week in 2025/26.
Worked examples: how much of each pound to set aside
These are illustrative examples for a freelancer in England with no other income and no student loan, using 2025/26 rates.
| Profit | Income tax | Class 4 NI | Total | Share of profit | Per month |
|---|---|---|---|---|---|
| £25,000 | (£25,000 – £12,570) x 20% = £2,486.00 | £12,430 x 6% = £745.80 | £3,231.80 | 12.9% | £269.32 |
| £45,000 | £32,430 x 20% = £6,486.00 | £32,430 x 6% = £1,945.80 | £8,431.80 | 18.7% | £702.65 |
| £60,000 | £37,700 x 20% + £9,730 x 40% = £11,432.00 | £37,700 x 6% + £9,730 x 2% = £2,456.60 | £13,888.60 | 23.1% | £1,157.38 |
A common rule of thumb is to put aside somewhere between 20% and 30% of profit, but the table shows that the right figure depends on your income. At lower profits a smaller share is enough, while someone near £60,000 should hold back nearer a quarter. Always set aside against profit rather than turnover, and base it on your best estimate of expenses.
Do not forget payments on account
If your bill is more than £1,000 and less than 80% was collected at source, HMRC asks for payments on account towards the following year. In the £45,000 profit example, the 31 January bill would include £8,431.80 for the year just ended and a first payment on account of £4,215.90 for the next, a total of £12,647.70. A second £4,215.90 is due on 31 July. Many freelancers are caught out by this January spike, so build it into the savings plan from the start.
Common mistakes when setting money aside
- Setting aside a percentage of turnover instead of profit, then spending the rest.
- Keeping tax money in the main current account where it is easy to spend.
- Forgetting the July payment on account.
- Not allowing for student loan repayments, which are collected through Self Assessment for the self-employed.
- Ignoring the Personal Allowance reduction on income over £100,000.
- Waiting until January to find out the bill.
A simple practical system
- Estimate your annual profit and use the table to find your likely rate.
- Open a separate savings account for tax.
- Transfer your chosen percentage each time a client pays you.
- Review your profit every quarter and adjust.
- Pay by 31 January and 31 July, and keep records for five years after the filing deadline.
Related guides: how to save for a self-employed tax bill, payments on account explained, Class 4 National Insurance explained and a first-year self-employed tax guide. See our Self Assessment for sole traders service as well.
SATR is a trading style of Accotax. Our qualified UK accountants calculate your actual bill and file online for a fixed fee from £199 + VAT, so you know what to set aside.
This is general information, not personal tax advice.
Irregular income and how to smooth it out
Freelance income is rarely even. One month may bring several large invoices and the next almost none, which makes it tempting to treat the good months as normal. A steadier approach is to transfer tax money whenever you are paid, and to pay yourself a regular amount from the rest. That way a quiet month does not force you to dip into funds that belong to HMRC. If you pay a regular drawing each month, review it twice a year against your actual profit to the date.
It also helps to know your likely tax year profit by the end of the winter. If you can see that profit will be well above or below last year, you can adjust your savings, consider a pension contribution, or ask HMRC to reduce a payment on account if income has genuinely fallen. A quick estimate in January for the year ending in April gives time to act before the year closes on 5 April. Our guide to reducing payments on account explains the process.
Finally, remember that Making Tax Digital for Income Tax applies from 6 April 2026 to people with qualifying income over £50,000, then over £30,000 from April 2027 and over £20,000 from April 2028. If that may affect you, regular records are no longer optional, and the same habit of tracking income and expenses monthly will help both with this and with your tax savings.
Frequently asked questions
Is the tax calculated on income or profit?
On profit, meaning income minus allowable expenses. A freelancer invoicing £50,000 with £8,000 of expenses is taxed on £42,000, not £50,000.
Should I save more if I earn over £50,270?
Yes. The 40% band applies above that level, so set aside a larger percentage — around 30% to 35% of the excess is a sensible starting point.
Should I set aside tax from turnover or profit?
Set aside from profit, because tax is charged on income after allowable expenses. A sensible approach is to estimate expenses and transfer a percentage of each payment received.
Is a flat 25% enough?
It may be for many freelancers, but not all. At £25,000 profit the bill is about 13%, while at £60,000 it is about 23%. Student loans and other income can push this higher.
Where should I keep tax money?
Use a separate savings account so it is not spent, and consider interest earned, which may itself need reporting. An instant-access savings account keeps it earning while staying available for the January and July deadlines.
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The Bottom Line
Most freelancers should set aside 20% to 30% of profit for tax, but the right figure depends on income — about 13% at £25,000 profit and 23% at £60,000. Build payments on account into the plan from the start, keep tax money in a separate account, and review your profit quarterly.
SATR’s qualified UK accountants calculate your actual bill and file online for a fixed fee from £199 + VAT. Order online now or see our Self Assessment for freelancers service.
