What Percentage Should Tradesmen Put Aside for Tax in the UK?

“A lot of tradesmen don’t have a tax problem.
They have a spending problem disguised as a tax problem.”

A portion of every payment you receive already belongs to HMRC — and if you don’t separate it early, tax season becomes painful very quickly.

I’ve seen plenty of tradesmen earning good money but still panic when the tax bill arrives because they spent everything during the year.

The simple solution is to build a tax buffer into your system from day one.

The Short Answer

Most UK tradesmen should aim to put aside:

• 20–30% of profit as a minimum
• 30–35% if earning higher profits
• More if VAT registered or operating through a limited company

The exact percentage depends on:

• Your profit level
• Business structure
• Other income
• Pension contributions
• Allowable expenses

But for most sole traders:

Putting aside around 25–30% is usually a safe starting point.

Why Tradesmen Get Caught Out

The problem is simple:

Tradesmen often confuse:

• Turnover
  with
• Profit

Then they confuse:

• Profit
  with
• Take-home pay

They are completely different things.

For example:

Item	Amount
Annual turnover	£85,000
Expenses	£25,000
Actual profit	£60,000

That £60,000 is what tax is based on — not the £85,000.

This is why understanding your numbers matters. my article – How to Price a Job Properly (Step-by-Step Guide) explains this.

A Simple Rule Most Tradesmen Can Follow

Sole Traders Earning Under £50k Profit

If your profit is below roughly £50,000:

Put aside around 25% of profit.

That usually covers:

• Income tax
• National Insurance
• A small buffer

Sole Traders Earning Over £50k Profit

Once profits move into higher-rate tax bands, the bill rises quickly.

At this stage:
Aim for 30–35%.

This becomes even more important if:

• You regularly have large months
• Work is seasonal
• You don’t track expenses properly

Current UK income tax thresholds for England, Wales and Northern Ireland remain:

• 20% basic rate
• 40% higher rate
• 45% additional rate

Self-employed National Insurance is also payable above the threshold profits.

The Biggest Mistake: Forgetting “Payments on Account”

This catches tradesmen every year.

If your tax bill exceeds £1,000, HMRC often asks for:

• Your current tax bill
  PLUS
• An advance payment toward next year’s bill

This is called a Payment on Account.

So your first large tax bill can feel almost double.

Example:

Item	Amount
Current tax owed	£6,000
First payment on account	£3,000
Total January payment	£9,000

Many tradesmen don’t expect this.

This Article – How Much Tax Should You Set Aside as a Sole Trader? may help

“I’ve seen tradesmen hit a £15,000 January tax bill after spending a strong summer’s cash flow too aggressively.”

The Best System Is Separate Accounts

The easiest solution is simple:

Every time money comes in:

• Move your tax percentage immediately into a separate savings account.

Do not touch it.

Treat it as already spent.

This removes:

• Guesswork
• Panic
• January stress

What About VAT?

VAT is where many growing trades businesses get into trouble.

If you’re VAT registered:

• VAT is not your money
• It should never be treated as income

Current VAT registration threshold rules can change over time, so always check HMRC guidance directly.

A common mistake is:

• Spending VAT money during busy periods
• Then struggling when the VAT quarter arrives

Limited Company vs Sole Trader

The percentage you set aside also changes depending on structure.

Limited companies deal with:

• Corporation tax
• Dividend tax
• PAYE
• Director salary planning

This is why many growing trades businesses eventually review whether remaining sole trader still makes sense.

My article Limited Company vs Sole Trader for Tradesmen (UK) is a useful read

A Practical Example

Let’s say a self-employed electrician makes:

Item	Amount
Turnover	£120,000
Expenses	£45,000
Profit	£75,000

A sensible approach might be:

• Put aside 30–35%
• Keep VAT completely separate
• Build a 3–6 month buffer

Without this system, one slow period can create major problems.

Good Tradesmen Still Go Broke

This is the hard truth.

Plenty of skilled tradesmen:

• Earn good money
• Stay busy all year
• Still struggle financially

Usually because:

• No systems
• No cash reserves
• No tax planning
• Poor pricing

Being good on the tools does not automatically make someone good with money. The following link shines a light on cashflow problems.

Why Most Tradesmen Struggle With Cash Flow (Even When Busy)

Final Thoughts

If you remember one thing, remember this:

The tax bill is never the problem.
Failing to prepare for it is.

For most UK tradesmen:

• 25–30% is a sensible starting point
• Higher earners should usually save more
• Separate accounts remove most stress

The earlier you build the habit, the easier business becomes.

“Tax rules change regularly and individual circumstances vary. Always speak to a qualified accountant regarding your specific situation.”