If you’re self-employed, one of the easiest ways to get caught out is forgetting that not all the money you earn is yours to spend. Tax and National Insurance are your responsibility, and they don’t get taken automatically like they do in a job.
The good news is you don’t need to overcomplicate it. You just need a simple system and a realistic percentage.
What You Actually Pay
When you’re self-employed in the UK, you usually pay:
- Income tax
- National Insurance contributions
Both are based on your profit, not your turnover.
Profit is what’s left after your expenses. So if you make £2,000 in sales but spend £800 on stock, postage, and fees, your profit is £1,200. That’s the figure that matters.
Income Tax Explained Simply
You don’t pay income tax until your total income goes over the personal allowance, which is currently £12,570.
After that:
- 20% on income between £12,570 and £50,270
- Higher rates only apply if you earn more than that
If you’re under the allowance, you won’t owe income tax, but you still need to submit a tax return.
National Insurance Explained
For most self-employed people, National Insurance works like this:
- 6% on profits between £12,570 and £50,270
- 2% on anything above £50,270
There’s also what used to be Class 2 National Insurance, but this is now effectively £0 for most people, although you may still build up credits towards your State Pension.
The key thing to remember is that once you go over the personal allowance, you’re usually paying both tax and National Insurance on that portion.
A Practical Example
Let’s say your profit is £2,000 per month, which is £24,000 per year.
That puts you over the personal allowance, so both tax and National Insurance apply.
- Taxable income: £24,000 − £12,570 = £11,430
- Income tax at 20% ≈ £2,286 per year
- National Insurance at 6% ≈ £685.80 per year
That’s roughly £3,000 total, or about £250 per month.
If you set aside:
- 20% = £400 per month
- 30% = £600 per month
You’d comfortably cover your bill and have a buffer.
How Much Should You Set Aside?
A simple rule that works for most people:
Set aside 20% to 30% of your profit
- Closer to 20% if your income is lower
- Closer to 30% if you’re earning more or want to be safe
Even if you don’t end up owing that much, it puts you in control instead of scrambling later.
Where to Keep Your Tax Money
This is where a lot of people go wrong.
If your tax money sits in your main account, it’s too easy to spend it without realising.
A better approach:
- Use a separate savings pot or account (Mettle allows you to create pots)
- Move your percentage across regularly
- Treat it as untouchable
That way, when your bill is due, the money is already there.
What If You Don’t Owe Much?
If your income stays below the personal allowance, you might not owe income tax and may pay little or no National Insurance.
If you’ve been setting money aside anyway, you’ve got options:
- Keep it as a buffer for next year
- Use it for business expenses
- Pay yourself a bit extra if needed
It’s a much better position to be in than being short.
When You Actually Pay It
Self-employed tax isn’t taken monthly. It’s usually due:
- 31 January
- 31 July (if you’re asked to make payments on account)
Because of that gap, it’s easy to forget how much you owe. Setting money aside regularly solves that problem.
A Simple System That Works
If you want to keep things straightforward:
- Work out your monthly profit
- Set aside 20–30%
- Keep it in a separate pot
- Leave it alone
That’s enough for most people.
Final Note
Being self-employed means more freedom, but it also means handling things yourself.
If you get into the habit of putting money aside early, tax stops feeling stressful. It just becomes part of how you run your business.
If you’re not sure what your own figures look like, try my self employed tax and NI calculator UK to get a quick estimate and plan what to set aside.
