How Much Should You Set Aside for Tax When You Are Self-Employed?
The worst moment in self-employment is the one where a tax bill lands that you have not saved for. It is entirely avoidable, and the fix is a habit, not a spreadsheet: every time a client pays you, move a slice of it into a separate account and forget it exists. The only real question is how big that slice should be. The short answer is 20 to 30 percent for most people, but the right number depends on where you live and how much you earn. Here is how to work out your figure, the system that makes it painless, and the traps that catch people in their first year. This is general guidance, not tax advice, so check the rules with your own tax authority or an accountant.
The short answer
As a rule of thumb, set aside 20 to 30 percent of every payment you receive into a separate savings account, purely for tax. For many self-employed people on modest to middle profits that range covers their income tax and any self-employment or social contributions. It is a typical starting point, not a guarantee: very high earners, or people in high-tax places with few deductions, can owe more, which the country notes below cover. All the figures here are in your own currency, so read any amount as whatever that means where you are.
Treat 20 percent as a floor and 30 percent as a safer default if you earn well, live somewhere with higher tax, or are not sure yet. It is far easier to end the year with a small surplus than to be caught short. The key is to do it on every payment, the day it arrives, rather than guessing at the end of the year.
Why a percentage of every payment beats a year-end guess
Tax feels frightening because people treat it as one big number that appears once a year. Break it into a percentage of each invoice and it stops being scary. When a 1,000 payment lands and you immediately move 250 of it aside, the 750 that is left is genuinely yours to spend. You never build a lifestyle on money that was always the tax authority's.
This also smooths out the feast-and-famine problem. Self-employed income is lumpy, but if every payment is taxed at the same percentage the moment it arrives, a big month and a quiet month both leave you covered. You are, in effect, running your own payroll deduction, which is exactly what an employer would have done for you.
How much, and what moves the number
The 20 to 30 percent range is a starting point. Nudge it up or down based on a few things:
Push it higher if you earn enough to reach higher tax bands, live in a high-tax country or region, pay a separate self-employment or social-security contribution on top of income tax, or have few business expenses to deduct. You can hold it lower, nearer 20 percent, if you earn modestly, have a tax-free allowance you have not used, or have significant deductible costs that shrink your taxable profit.
Two things to remember. You are taxed on your profit, not your turnover, so legitimate business expenses lower the bill. And sales tax or VAT, where you are registered for it, is a separate pot of money you collect and pass on, not part of your income tax set-aside, so never spend it either.
How much to set aside by country
Tax systems differ a lot, so the percentage that is right for you depends on where you are registered. The notes below are general and were written in 2026, so confirm the current rules and thresholds with your own tax authority.
| Where | Rough guide and what to check |
|---|---|
| United States | Commonly 25 to 30 percent. On top of federal and state income tax, the self-employment tax is 15.3 percent for Social Security and Medicare, and many freelancers make quarterly estimated payments. Check the IRS and your state. |
| United Kingdom | Often 20 to 30 percent, though it depends on your profit, since National Insurance and higher Income Tax bands only apply above set thresholds. You pay through Self Assessment, and may owe payments on account, advance instalments toward next year's bill. Check GOV.UK. |
| Canada | Commonly 25 to 30 percent, covering federal and provincial income tax plus CPP contributions. GST or HST is separate above the small-supplier threshold. Check the CRA and your province. |
| Botswana and Southern Africa | Income is taxed on progressive bands with a tax-free portion at the bottom, so many small operators pay a lower effective rate than the top band once that free band is counted. Register as self-employed, check the current bands, and note VAT is separate above the registration threshold. In Botswana, check BURS; elsewhere in the region, your national revenue authority. |
| Elsewhere | Find your income tax bands, add any compulsory social or self-employment contribution, and set your percentage from that. When unsure, start at 30 percent and adjust once you have filed once. |
For the detail, the US IRS self-employed center, the UK's Self Assessment guidance, and Botswana's BURS all set out what you owe and when. This table is a starting point, not tax advice.
The separate-account system that makes it painless
The method matters more than the exact percentage, because a perfect number you never act on saves you nothing. Set it up once:
- Open a separate savings account just for tax, ideally one you cannot spend from with a card.
- Pick your percentage from the guide above, erring high if unsure.
- Move that percentage the day each payment clears, not weekly, not monthly, the same day. If a 1,500 invoice is paid and your rate is 25 percent, 375 goes across immediately.
- Never touch it except to pay the tax bill or set aside instalments. If it earns a little interest, that is a bonus toward next year.
After a few months this becomes automatic, and the tax bill changes from a threat into a transfer you have already funded. Some people keep a second pot for VAT or sales tax for the same reason.
A worked example
Say you invoice 60,000 over a year and decide on 25 percent. Every time a client pays, a quarter goes straight to the tax account. By year end you have moved 15,000 aside without ever feeling a single large hit.
If your actual bill comes to 13,000, you have a 2,000 buffer to roll into next year or put toward your first instalment. If it comes to 16,000 because you had a strong year, you were close, and you simply lift your percentage slightly for the year ahead. Either way you are never scrambling, because the money was set aside as you earned it. The one number you must get right for this to work is your real income, which is just the total of what clients actually paid you, something a statement of account can tally in seconds.
That example saved on gross income to keep it simple, but you are taxed on profit, so expenses change the real figure. Say the same 60,000 of invoices came with 15,000 of allowable costs, leaving 45,000 of profit. Tax at 25 percent of that profit is about 11,250, not 15,000. Saving a flat percentage of every gross payment is still the safe habit, because it over-saves slightly and your deductions hand you a buffer at filing time rather than a shortfall.
Traps that catch people out
- The first-year trap. In your first year there is no prior bill to warn you. In the UK, for example, your first Self Assessment bill can include the balance for the year plus a first payment on account toward the next year, so it can land at roughly one and a half times your tax. Set aside from day one and lean toward 30 percent until you have filed once.
- Spending the VAT. Sales tax or VAT you collect was never your money. Keep it separate from both your income and your tax set-aside.
- Saving on turnover, not profit. You are taxed on profit, so track deductible expenses, or you will over-save and under-earn. The flip side: do not forget the set-aside just because you had costs.
- Raiding the account. A tax pot you dip into in a slow month is not a tax pot. If cash flow is the problem, fix the pricing or the chasing, not the tax savings.
It starts with knowing what you actually earned
This whole system rests on one figure: how much your clients have actually paid you. If your invoicing lives in scattered documents and your inbox, that number is a guess, and a guess is how people under-save. Keeping every invoice in one place, and pulling a simple total when you need it, is what makes the set-aside accurate.
You can do that free with Remit: create and send your invoices from one account, and when you need to see what a client has paid across several bills, a statement of account totals it for you. Pull that total at tax time and your set-aside is based on fact, not a guess. If you also charge VAT, our guide on whether you need to charge VAT covers that separate pot.
A final word: this article is general guidance, not personalised tax advice. Tax rates, bands and thresholds change every tax year and differ by country, so always confirm the current figures with your own tax authority or an accountant. Reviewed October 2026 against IRS, GOV.UK and BURS guidance.
