What to set aside for tax each month
Most people who get into trouble with tax did not do anything wrong. They earned the money, spent it, and then a bill arrived for a share of income that had left the account months earlier. The fix is boring and it works: move a slice of every payment into a separate account on the day it lands.
Pick a percentage and stop thinking about it
For a sole trader with no other income, setting aside a quarter of everything you invoice will cover income tax and contributions in almost every case. If you earn well above the higher-rate threshold, make it a third. If you are a company director paying yourself a small salary and dividends, the company should keep back around a fifth of its profit for company tax, and you should keep a tenth of the dividends for your own return.
These are starting points, not a calculation. The point is to choose a number you will actually apply every time, then let your accountant refine it once there are a few months of real figures.
Use a second account, not a spreadsheet
A spreadsheet tells you what you should have saved. A separate account contains it. Open a second business current account or a savings pot, give it a name like “Tax”, and set up the transfer so it happens the same day money comes in. If your bank supports rules, automate it. If not, do it when you send the invoice reminder, so the habit attaches to something you already do.
What to do with the surplus
If you have set aside too much, that is a good problem. Leave it there until the return is filed and the payment on account for the following year is known, then move the difference back. Do not raid it in a slow month; a slow month is exactly when the temptation is strongest and the consequence is worst.
When the number changes
Three things should make you revisit the percentage: your income doubles or halves, you take on staff, or you incorporate. Each of those changes what you owe and when. Tell your accountant when they happen and ask for a new figure. It takes five minutes and it is what the monthly fee is for.
This is general information, not financial advice. The right percentage depends on your income, your structure and where you are, so check it against your own numbers.
