How much should a sole trader set aside for tax in the UK?

As a sole trader, you pay Income Tax and Class 4 National Insurance on your profits. A common rule of thumb is to set aside 25–30% of your net profits for tax, though the exact amount depends on your income level. For a rough guide at 2024/25 rates: - Profit up to £12,570: no Income Tax, no NI (but also no State Pension credit if below £6,725) - Profit £12,571–£50,270: 20% Income Tax + 6% Class 4 NI = ~26% effective rate - Profit £50,271–£125,140: 40% Income Tax + 2% Class 4 NI = ~42% on the additional profits Deductions (pension contributions, allowable expenses) reduce your taxable profit and therefore your tax bill. Best practice: open a separate savings account and move 25–30% of every payment you receive into it. Review your position after 6 months and adjust if your income has changed significantly.

• Rule of thumb: set aside 25–30% of profits for Income Tax + Class 4 NI
• Basic rate band (£12,571–£50,270): roughly 26% effective rate (20% IT + 6% NI)
• Higher rate band (above £50,270): roughly 42% on additional profits
• Use a separate savings account for your tax pot — discipline is key
• Pension contributions and expenses reduce taxable profit — use them to manage your bill