Self-employed? Setting money aside for your tax bill

When you’re employed, tax and National Insurance come off your pay before it reaches you. When you work for yourself, the whole amount lands in your account, and it’s up to you to make sure the tax is there when HMRC asks for it.

Many people only realise how much they owe when their first big Self Assessment bill arrives. A simple habit of setting money aside as you go can take most of the stress out of it.

Update, October 2026: since 6 April 2024, self-employed people with profits above a set level no longer have to pay Class 2 National Insurance, because it’s treated as paid. Class 4 National Insurance is still collected through Self Assessment and payments on account (GOV.UK: Self-employed National Insurance rates). Since 6 April 2026, sole traders and landlords with qualifying income above a set threshold must also use Making Tax Digital for Income Tax: keeping digital records and sending HMRC quarterly updates. The threshold comes down from 6 April 2027 (GOV.UK: Check if you need to use Making Tax Digital for Income Tax). The payment dates in this article haven’t changed.

Why it catches people out

The tax year runs from 6 April to 5 April. If you’re self-employed, you report your profits for the year on your Self Assessment return, and the tax for that year isn’t usually due until the following January. That gap can be a trap. The money is in your account for months, and it’s easy to treat it as yours to spend.

The first year can be the hardest. As well as the tax for your first year of trading, you may have to make your first payment towards the next year at the same time.

How payments on account work

Payments on account are advance payments towards your next tax bill, including Class 4 National Insurance if you’re self-employed. They are usually based on your previous year’s bill, with each payment being half of the tax you owed that year. They are due by midnight on 31 January and 31 July.

If you earn more than the previous year, you may still owe tax after both payments on account have been made. This is the balancing payment, and it’s due by 31 January after the end of the tax year, at the same time as the first payment on account for the next year. If you earn less, you may be able to reduce your payments on account or claim a refund.

You don’t have to make payments on account if your last Self Assessment bill was small, or if most of your tax was already collected another way, for example through your tax code. GOV.UK’s guide to payments on account explains when they apply.

A simple habit: set aside a share of every payment

The easiest approach is to open a separate account just for tax, and move a share of every payment you receive into it as soon as it arrives. Treat that money as already spent.

• Pick a share that fits your income. The right amount depends on your profits and any other income you have, so it’s worth working it out with your accountant rather than guessing.
• Move the money straight away. If you wait until the end of the month, it’s more likely to get spent.
• Keep the tax account separate. A separate account, ideally with a different bank or app from your day-to-day account, makes the money harder to dip into.
• Review it during the year. If your income rises, or you take on a large project, increase the amount you set aside.

Keep your records up to date

Setting money aside works best when you know roughly what your profit is. Keeping your income and expenses records up to date during the year means fewer surprises when you sit down to do your return. GOV.UK has guidance on the business records you need to keep if you’re self-employed.

If you know a payment will be difficult, contact HMRC early. It’s much better to discuss your options before the deadline than after it.

Sources

Our main sources are HMRC and GOV.UK:

• Understand your Self Assessment tax bill: payments on account
• Pay your Self Assessment tax bill
• Self Assessment tax returns: deadlines
• Business records if you’re self-employed

Talk to us about your Self Assessment

We can help you estimate your tax bill during the year, check whether your payments on account are right and prepare your Self Assessment return, so you know what to set aside and when. Call us on 020 7164 0225, send us a WhatsApp message or email your tax question to hello@ibandco.co.uk.

You can also read about our Self Assessment and Personal Tax Planning services.

First published 12 March 2024. Tax content checked on 9 October 2026. This article reflects the rules at the date it was first published. Where something has changed since, we’ve added an update note. Rules and rates change, so please check with us before acting.

Please note: this article is general information based on our understanding of UK tax rules at the date shown above. It is not advice for your circumstances, and tax rules and rates can change. Please speak to us before acting on it.