How much should you set aside each month for tax?

Saving for your tax bill
Saving for your tax bill

It’s all very easy if you’re in a regular job. Tax and national insurance get taken off your pay before you see any of it; And what you’re left with is yours to manage and share out between all the other demands of housing, food, transport and personal expenditure, without having to worry about an unexpected tax bill.

But for the self-employed it’s different. With a tax bill to pay every 6 months you probably want to set money aside regularly through the year. But how much? If you’ve been in business for a few years and earn roughly the same amount each month you may have a good idea of how much you need have put aside. It’s more difficult to feel you have safely tucked away enough if you’ve just started working, or your income fluctuates a lot.

The easiest number to keep track of is your income before taking off any business expenses and you probably have a very good idea of how much income you’ve received this month or this week. So the simplest way of estimating how much tax to set aside is to just take a percentage of your income each month. But what should that percentage be? If you research sex-work advice sites you will see various estimates suggested. I’ve seen recommendations of anything between 18% and 35% of income.

The reasons for this wide variation are twofold. Firstly, tax is worked out on profits – that’s income less business expenses – so if your business has a lot of expenses (for example if you do lots of travelling or have an expensive dungeon to maintain) your tax will be a lower percentage of your income than if you worked solely from home with few expenses. The other factor is that you are allowed to earn around £12,000 per year before paying tax, but if you have another job (for example if you are also employed doing something completely different) this tax-free allowance may already have been used up.

To help you get a handle on how much you should set aside each month I’ve created an online calculator. It’s now fully updated for the new tax year that starts in April 2021, but the calculators are also still there for the two previous tax years if you want to use them. The calculator, along with straightforward instructions, is here calculate your tax bill

If you plug in some numbers you’ll see that with monthly income of £3,000 and business expenses of £500 you need to set aside around £457 each month, which is about 16% of your income; but if your income is £6,000 per month with expenses of £1,000 the estimates rise to £1,228 and 22%.

The calculator is designed for the straightforward situation where your sex-work business is your only income. At the moment it won’t give you the right answer if you have a second job. I will try to add that extra functionality for you.

And a final tip. If you use our TaxRelief Diary to keep your bookkeeping organised there’s a page near the back to keep track of how much tax to set aside.