How Much Should Freelancers Set Aside for Taxes? A Simple System

When you're employed, tax comes out before your pay arrives. As a freelancer the whole invoice arrives and the tax bill comes later. This guide covers a simple system for setting money aside, and how US and UK freelancers are expected to pay during the year, from the official sources.

A simple set-aside system

1. Open a separate account just for tax money, ideally at a different bank or as a separate savings pot, so you don't see it as spendable.
2. Every time a payment lands, move your set-aside % immediately. Base it on what actually landed after payment fees, minus any costs that payment covers.
3. Treat the rest as your "safe to spend" money for business costs and your own pay.
4. Review every quarter. Compare what's in the tax account with an up-to-date estimate of what you'll owe, and top up or lower the percentage.

Moving the money as each payment lands matters more than the exact percentage. A slightly wrong percentage can be fixed at the quarterly review. Money you've already spent can't.

Choosing your percentage

• If you've filed before: divide last year's total tax bill (income tax plus any self-employment or social contributions) by last year's profit. That gives an effective rate to start from.
• If this is your first year: use your tax authority's official calculator or tables with a cautious profit estimate, or ask an accountant for a number. Many people start higher and adjust down, because a refund is easier to deal with than a shortfall.
• Include everything you'll owe, not just income tax: self-employment tax, national insurance or social contributions, and sales tax or VAT you collected (VAT collected is not your money at all).

Our hourly rate calculator lets you enter your set-aside % so your rate floor already covers it.

If you're taxed in the US: estimated tax

According to the IRS, tax must be paid as you earn income during the year. If you're in business for yourself you generally need to make estimated tax payments, and these cover self-employment tax as well as income tax.^[1] Key points from the IRS page:

• Individuals, including sole proprietors, generally have to make estimated payments if they expect to owe $1,000 or more when they file.^[1]
• The year is split into four payment periods, each with its own due date. Underpaying in a period can bring a penalty even if you're due a refund overall.^[1]
• Most taxpayers avoid the underpayment penalty if they owe less than $1,000 after withholding and credits, or if they paid at least 90% of this year's tax or 100% of last year's, whichever is smaller. Special rules apply to farmers, fishermen and some higher-income taxpayers.^[1]
• Form 1040-ES is used to figure the payments. Nonresident aliens use Form 1040-ES (NR).^[1]

In practice: once your tax account holds a quarter's estimate, pay it by that period's due date instead of letting it pile up until April.

If you're taxed in the UK: payments on account

GOV.UK explains that Self Assessment "payments on account" are advance payments towards your next tax bill, including Class 4 National Insurance if you're self-employed.^[2]

• There are two payments, due by midnight on 31 January and 31 July. Each is usually half of the previous year's tax.^[2]
• You don't have to make them if last year's tax was under £1,000, or if more than 80% of the tax you owed was already paid outside Self Assessment (for example through your tax code).^[2]
• If you earn more than estimated, a balancing payment is due by 31 January of the following year.^[2]
• In your first year of payments on account, the January payment can include both the full bill for the previous year and the first payment on account for the next. GOV.UK's example shows £4,500 due on a £3,000 bill.^[2]

That first-January "double payment" is the classic surprise for new UK freelancers, and it's the best reason to start setting money aside from your very first invoice.

Habits that prevent a surprise bill

• Keep a running log of every invoice: amount, fees, what actually landed, and what you moved to tax.
• Keep receipts for business costs as you go. Deductions you can't prove don't help.
• Put the payment dates for your country in your calendar with a two-week reminder.
• If your income jumps, raise the percentage straight away. Don't wait for the year-end.

1. Internal Revenue Service, "Estimated taxes". irs.gov (page last reviewed 25 Sep 2026; accessed 16 Oct 2026).
2. GOV.UK, "Understand your Self Assessment tax bill: Payments on account". gov.uk (accessed 16 Oct 2026).