How Much Tax Should Self-Employed Tradesmen Set Aside in the UK?

This guide is part of our Tax for Tradesmen section, where we explain how tax works for self-employed tradespeople.

Why Tradesman Get Caught Out by Tax

Many self-employed tradesmen get caught out by tax because the system works very differently from being employed. When you work for a company, tax and National Insurance are automatically deducted through PAYE, so you never really see the money before it goes to the government. But when you’re self-employed, clients pay you the full amount and it can feel like it’s all yours to spend. The problem is that a large portion of that money belongs to **HM Revenue and Customs, and if you don’t set it aside throughout the year, the tax bill can come as a nasty shock when it finally arrives.

Payments on account

Another reason self-employed tradesmen get caught out is something called payments on account. Once you’ve completed your first tax return, **HM Revenue and Customs often asks you to start paying part of next year’s tax bill in advance. That means you’re not just paying tax for the year that has already passed, you’re also paying towards the next one at the same time. For someone who hasn’t planned for it, the bill can feel like it has suddenly doubled.

Irregular Income Makes It Easy to Overspend

Income in the trades can also be unpredictable. Some months are extremely busy while others are quieter, especially during bad weather or around holidays. When the money is coming in quickly it’s easy to assume things will stay that way and spend more freely. The trouble is that tax isn’t calculated month by month – it’s based on your total earnings for the year. Without setting money aside regularly, the tax bill can build up quietly in the background.

The 30% Rule Many Tradesmen Use

A simple rule that many self-employed tradesmen follow is to set aside around 30% of everything they earn for tax. This doesn’t mean that 30% will always be owed, but it usually provides a safe buffer to cover Income Tax and National Insurance contributions. By transferring this money into a separate account every time a payment comes in, you remove the temptation to spend it and make sure the funds are there when your tax bill is due with **HM Revenue and Customs.

Example: A Tradesman Earning £50,000

If a self-employed tradesman earns £50,000 in a year, setting aside 30% would mean saving £15,000 towards tax. The final tax bill may end up being slightly lower depending on expenses and allowances, but having that money set aside means there are no nasty surprises. Anything left over after paying the bill simply becomes extra savings.

Income Tax Basics

When you’re self-employed, your profit is subject to Income Tax. Profit simply means the money you earn from jobs minus your allowable business expenses such as tools, materials, fuel, insurance, and other work-related costs. Once your profit is calculated, tax is applied based on the current income tax bands. Your tax is reported each year through a Self Assessment tax return submitted to **HM Revenue and Customs.

National Insurance Explained

As well as Income Tax, self-employed tradesmen also pay National Insurance contributions. These payments go towards things like the state pension and certain benefits. Self-employed people usually pay two types: a smaller flat weekly amount and another percentage based on profits once they reach a certain level. These contributions are calculated when you complete your Self Assessment and are paid alongside your Income Tax to **HM Revenue and Customs.

The Biggest Tax Mistake Self-Employed Tradesmen Make

One of the biggest mistakes self-employed tradesmen make is treating all the money that comes into their bank account as if it belongs to them. When a customer pays an invoice, it can feel like you’ve earned that full amount. In reality, a portion of that money already belongs to **HM Revenue and Customs in the form of tax and National Insurance. If that money gets spent during the year on everyday living costs, tools, or holidays, it can leave tradesmen scrambling to find the cash when the tax bill arrives.

A Simple System That Works

A simple system many experienced tradesmen use is to have two bank accounts. All customer payments go into the main account, and then around 30% is immediately transferred into a separate “tax account.” That money is left untouched until the tax bill is due. By doing this consistently, the tax payment becomes routine rather than stressful.

The Basic Tax Structure for Self-Employed Tradesmen

When you’re self-employed, you don’t pay tax on all the money that comes into your bank account. Instead, tax is calculated on your profit, which is the amount left after you subtract your business expenses from your total income. Each year you report this through a Self-Assessment tax return submitted to **HM Revenue and Customs.

Everyone in the UK also receives a Personal Allowance, which means you can earn a certain amount before paying any Income Tax. Anything above that allowance is then taxed according to the current income tax bands.

Common Expenses That Reduce Your Tax Bill

One advantage of being self-employed is that many work-related costs can be deducted from your income before tax is calculated. These are known as allowable expenses.

Common examples for tradesmen include:

• Tools and equipment used for work
• Work clothing or protective gear such as boots, helmets, and hi-vis
• Vehicle expenses like fuel, servicing, and insurance if the vehicle is used for work
• Materials purchased for jobs
• Public liability insurance
• Accountant fees
• Mobile phone or internet costs used for business
• Training or certifications related to your trade

By recording these expenses properly, your taxable profit becomes lower, which means you pay less tax to **HM Revenue and Customs.

Simple Example

Imagine a tradesman earns £60,000 in a year.

If their business expenses total £15,000 for tools, fuel, materials, and insurance, their taxable profit would be:

£60,000 income – £15,000 expenses = £45,000 taxable profit

This £45,000 is the figure used when calculating Income Tax and National Insurance.

Typical Tax Percentage After Expenses

After you subtract your business expenses, the remaining profit is what gets taxed. For many self-employed tradesmen earning somewhere between £30,000 and £60,000 profit, the combined amount of Income Tax and National Insurance usually works out at roughly 20%–30% of their profit.

The exact amount depends on income levels, tax bands, and the personal allowance set by HM Revenue and Customs, but using a rough percentage is a helpful way to plan ahead.

A Simple Example

Imagine a self-employed tradesman has:

£70,000 income from jobs,

-£20,000 business expenses

= £50,000 profit.

From that profit, the first portion is covered by the personal allowance (tax free).The remaining amount is taxed at the basic rate of 20% Income Tax. National Insurance contributions are also applied to the profit.

After everything is calculated, the total tax and National Insurance might end up somewhere around £10,000–£13,000, depending on the situation.

That’s why many tradesmen follow the simple rule of saving around 30% of their income for tax payments to **HM Revenue and Customs.

The Simple Rule

Because tax bills can vary, a common rule used by experienced self-employed workers is

Set aside 25–30% of your profit for tax and National Insurance,

If the final bill is lower, the leftover money becomes savings rather than an emergency scramble when the tax deadline arrives.

Why Keeping Records Matters

Keeping good records of expenses throughout the year is important because every legitimate business cost reduces your taxable profit. Many self-employed tradesmen miss out on allowable deductions simply because they forget to track receipts or don’t realise certain expenses can be claimed.

What Happens If You Don’t Save for Tax (A Realistic Scenario)

Imagine a self-employed tradesman who has a really busy year and earns around £60,000 from jobs. Because the money is coming in regularly, it feels like things are going well and most of the income gets used throughout the year on living costs, tools, van repairs, and holidays. When the tax return is finally completed and sent to **HM Revenue and Customs, the tradesman discovers they owe a tax bill of around £12,000.

The shock doesn’t stop there. Because it’s their first year with a larger income, they may also be asked to make payments on account, which means paying part of the following year’s tax in advance. Suddenly the total amount due could be closer to £18,000 or more, and if that money hasn’t been set aside it can cause serious financial pressure.

The Lesson Most Tradesmen Learn Once

This situation is extremely common for people who are new to self-employment. The first big tax bill often comes as a surprise because the money was earned months earlier and has already been spent. That’s why experienced tradesmen treat tax money as if it doesn’t belong to them and move a percentage into a separate account as soon as they get paid.

Conclusion

The key to avoiding tax stress as a self-employed tradesman is planning. By setting aside around 25–30% of your income and keeping track of your expenses, you can avoid the shock many people experience when their tax bill arrives from HM Revenue and Customs.

Usefull links

How self employed Tax works https://financefortradesmen.wordpress.com/2026/03/09/how-self-employed-tax-works-for-tradesmen-in-the-uk-complete-guide/

What Expenses Can Tradesmen Claimhttps://financefortradesmen.wordpress.com/2026/03/09/what-expenses-can-tradesmen-claim-against-tax/

Avoid the January Tax Panichttps://financefortradesmen.wordpress.com/2026/03/09/how-to-avoid-the-january-tax-panic-as-a-self-employed-tradesman/

Written by the founder of Finance for Tradesmen, with over 30 years of experience in the electrical industry.