UK · Self-employment

How much to set aside for tax as a UK freelancer

A practical guide to putting money aside for income tax and National Insurance when you're self-employed, including payments on account and the first-year January bill that catches so many people out.

By Stuart Mathieson · 2 November 2026 · 6 min read

When you're employed, tax just disappears from your payslip before you ever see it. When you go freelance, every invoice lands in your account in full, and for a while it feels like you're earning a lot more than you are. Then January arrives.

I'm a freelance web developer, so this is the guide closest to my own working life. It's the explanation I'd give anyone going self-employed as a sole trader: what you'll owe, when you'll owe it, and how much of each payment to move somewhere safe. It uses the 2026/27 tax year, 6 April 2026 to 5 April 2027. If you trade through a limited company the rules are different, and this guide doesn't cover them.

What you pay tax on

You pay tax on your profit - what you invoice, minus allowable business expenses - not on what you invoice. That's why a sensible set-aside percentage is applied to profit, or to each payment after you've allowed for your costs.

On that profit you pay two things:

• Income tax, at the same rates as an employee. After the £12,570 personal allowance, that's 20%, 40% and 45% in England, Wales and Northern Ireland, or Scotland's six bands from 19% to 48% if you live in Scotland.
• Class 4 National Insurance: 6% on profits between £12,570 and £50,270, and 2% above that. That's less than the 8% employees pay.

If you have a student loan, repayments are added to your tax bill as well.

What happened to Class 2

Class 2 National Insurance used to be a flat weekly charge for every sole trader. It's no longer compulsory. If your profits are £7,105 or more a year, you don't pay it - HMRC treats Class 2 as already paid, which protects your National Insurance record.

If your profits are under £7,105, you don't have to pay anything, but you can choose to pay Class 2 voluntarily at £3.65 a week - about £190 a year. Your National Insurance record decides your State Pension, so in a low-profit year it's worth checking whether a voluntary payment would fill a gap.

How much to set aside

Here's the income tax and Class 4 National Insurance on a range of profits, as a share of the profit. These figures don't include a student loan.

The share of profit is your average rate. Your marginal rate - the tax on your next pound of profit - is higher. At £40,000 of profit, each extra £1,000 costs £260 in tax in England and £270 in Scotland. Above £43,663 in Scotland it jumps to 48p in every pound (42% plus 6%), so a good year can push your bill up faster than you'd expect.

A simple rule many freelancers use is to set aside 25% to 30% of every payment once profits are comfortably into five figures, and adjust once you know your real numbers. It's a bit more than most people need, which is the point - finding you've saved too much in January is a far better problem than the opposite.

Payments on account: the bill that catches people out

This is the part nobody warns you about properly, and it's why so many people's first proper January is such a shock.

Once your Self Assessment bill is £1,000 or more, HMRC asks you to pay towards next year's bill in advance. These are payments on account:

• Each one is half of the previous year's bill.
• They're due by 31 January and 31 July.
• Then on the following 31 January you pay a balancing payment - whatever's left after the two payments on account.

You don't have to make them if last year's bill was under £1,000, or if more than 80% of the tax you owed was already collected another way, for example through PAYE on a job. Student loan repayments aren't included in payments on account.

The first-year January bill

The first time payments on account kick in, you pay a whole year's tax plus half of the next year's, all on the same day.

Take a sole trader in their first tax year of trading who makes a £40,000 profit. Their bill is £7,132 in England, Wales or Northern Ireland, or £7,197 in Scotland. The following 31 January, they pay:

That's 150% of a year's tax in one go, then another 50% six months later. After the first year it settles down, because you're effectively paying each year's tax as you go.

If you expect a lower bill, you can ask HMRC to reduce your payments on account, online or with form SA303. But if your bill turns out higher than you expected, HMRC charges interest on the difference.

Habits that make it painless

These aren't clever, but they work:

• Use a separate account for tax. A savings account in your own name that you don't touch. The point is to make the tax money invisible.
• Move the money as soon as you're paid. Every time a client pays, move your set-aside percentage straight away. It's much easier than finding a lump sum later.
• Keep records as you go. Note income and expenses monthly, not in a panic in January. Many banking apps and accounting tools make this easy.
• Check your numbers mid-year. Around October or November, put your profit so far into the self-employed tax calculator, scale it up for the year and see whether your pot is on track.
• Don't count the tax pot as income. If you have a great month, remember a slice of it was never yours.

Deadlines and admin

If you've started trading and need to file a return for the first time, you must tell HMRC by 5 October after the end of the tax year you started in. For someone who started in the 2025/26 tax year, that's 5 October 2026. Online returns and the tax itself are due by 31 January.

Making Tax Digital for Income Tax is also arriving. It means keeping digital records and sending HMRC quarterly updates. Whether it applies to you depends on your income from self-employment and property before expenses - your turnover, not your profit:

• over £50,000 in 2024/25 - from 6 April 2026
• over £30,000 in 2025/26 - from 6 April 2027
• over £20,000 in 2026/27 - from 6 April 2028

Quarterly updates don't change how much tax you owe or when it's paid, but they do mean keeping your records up to date through the year - another reason to get into that habit early.

Run your own numbers

The self-employed tax calculator works out income tax, Class 4 National Insurance, student loan repayments and your payments on account, with Scottish or rest-of-UK rates. If you have a job alongside your freelance work, your tax position gets more complicated, and an accountant is worth the fee - especially in your first year, when getting set up properly saves a lot of hassle later.

Written by Stuart Mathieson

I'm a freelance web developer based in Scotland, and I build and maintain every calculator on this site myself. I check the figures in these guides against HMRC, the IRS and the other official sources listed below, but I'm not a tax adviser - for decisions that matter, talk to one. More about me.