💷 How Much Should UK Business Owners Set Aside for Tax?

Running your own business can be empowering — but there’s one thing that quickly snaps you back to reality: taxes.

Whether you're a sole trader or running a limited company, not setting aside enough for tax can cause cash flow nightmares. HMRC won't care if your bank account is empty when the bill is due. So the big question is:

💡 How much should you actually put aside for tax?

📊 The Short Answer

A good rule of thumb:

Sole Traders: Set aside 25% to 30% of your profits
Limited Companies: Set aside 20% to 25% of profits

This ensures you’re ready to cover:

• Income Tax (for sole traders)
• National Insurance Contributions (NICs)
• Corporation Tax (for companies)
• Dividend Tax (if you're paying yourself that way)

👤 For Sole Traders
Example:
Let’s say you earn £60,000 a year and spend £10,000 on business expenses.

Your taxable profit is £50,000.

Personal Allowance: The first £12,570 is tax-free
Income Tax (20%) on the rest: ~£7,486
National Insurance (Class 2 & 4): ~£2,438
→ Total Tax: ~£9,924
To be safe? Set aside £12,500 (25%)

That way, you’re covered — and might even have a buffer.

 
🏢 For Limited Companies
Limited company tax is more layered, but can be more tax-efficient.

Let’s assume:

£60,000 turnover
£10,000 expenses
You pay yourself a small salary (£9,000) and take the rest as dividends
After expenses and salary:

Corporation Tax (19%) = ~£7,790
Dividend Tax (8.75%) = ~£2,861
→ Total Tax: ~£10,651
Again, putting aside 25% (~£12,500) gives you breathing space.

📅 Why It’s Crucial to Save Monthly
HMRC doesn’t wait. Sole traders must make payments on account in January and July, while companies pay corporation tax 9 months after their financial year ends.

By saving a set percentage of income each month, you avoid surprises, stress, and late payment penalties.

Tip: Set up a dedicated tax savings account — automate transfers to it each month.

✅ Quick Tips for Staying on Top of Tax:

🔄 Track your income & expenses monthly
📅 Make calendar reminders for key tax deadlines
👨‍💼 Use an accountant or tax software to estimate and plan
📦 Register for VAT if your revenue exceeds £90,000
🔄 Review your tax savings rate yearly as profits grow
 
🎯 Final Thought
Setting aside money for tax isn’t exciting — but it’s essential. Get in the habit of treating that saved money as untouchable. Think of it like this: future-you will thank current-you when HMRC comes knocking and you’re ready.

Being your own boss means freedom — and being smart with tax is part of the price of that freedom.

 
Want help calculating your specific tax-saving percentage? Drop your numbers in, and I’ll run a tailored breakdown for you.