Tax Doesn’t Have to Be a Shock: A Sole Trader’s Guide to Setting Aside the Right Amount
If you’re self-employed, tax can feel like a nasty surprise that turns up once a year, takes a big bite out of your cash, and leaves you wondering what happened.
But here’s the truth: tax isn’t the problem. Lack of a simple system is.
Most sole traders don’t struggle because they’re disorganised or bad with money. They struggle because income is irregular, expenses are messy, and nobody has ever shown them a clear, practical way to set aside tax as they go.
This article will help you:
- understand why tax shocks happen
- choose a simple method for setting money aside
- build a habit that protects your cash flow
- feel confident going into 2026
And if you want support putting in place a clean, easy system, Zenith Book Keeping can help (and there’s a special early-2026 offer for new clients).
Why tax shocks happen (even when business is going well)
Tax shocks usually come from one of these:
- You spend what lands in the bank, forgetting some of it isn’t really yours
- You don’t know your true profit, so you can’t estimate tax accurately
- You mix personal and business spending, making it harder to track what’s deductible
- You leave bookkeeping until the last minute, so you’re always reacting, not planning
- You have a strong month and assume it’s all “spare cash”
This links directly to the earlier articles in this series: when you don’t have clarity on profit and cash flow, tax becomes guesswork.
The key idea: tax is based on profit, not turnover
Many sole traders accidentally set aside tax based on sales (turnover) because it feels simpler.
But tax is calculated on profit (income minus allowable expenses). That’s why keeping records up to date matters.
Real-world example: why turnover-based saving can mislead you
Two businesses both invoice £5,000 in a month:
- Business A has £1,000 of expenses → profit is £4,000
- Business B has £3,000 of expenses → profit is £2,000
If both set aside 25% of turnover (£1,250), Business B might be over-saving (and starving cash flow), while Business A might still be under-saving, depending on their total position.
The goal isn’t perfection. The goal is a method that’s simple, consistent, and close enough to prevent shocks.
A simple 3-step approach: earn it, split it, forget it
Here’s the habit that removes most tax stress:
- Get paid
- Immediately move a tax percentage into a separate pot
- Treat that money as untouchable
That’s it.
You can do this weekly, monthly, or every time you’re paid. The best schedule is the one you’ll actually stick to.
So… what percentage should you set aside?
There isn’t one perfect percentage for everyone. But there is a sensible starting point.
A practical rule of thumb (for many sole traders)
- Start with 20–30% of profit as a working range
- If you’re unsure, start at 25% and review quarterly
If you’re setting aside based on turnover (because you don’t yet have clean profit numbers), use a more cautious range and adjust once your bookkeeping is up to date.
The honest answer: the right percentage depends on
- your total annual profit
- other income sources
- allowable expenses
- whether you’re VAT registered
- whether you make payments on account
- your personal tax situation
That’s why having a bookkeeper in your corner is so valuable: you stop guessing.
Two easy methods to make tax saving painless
Method 1: The “separate account” method (simple and effective)
- Open a separate savings account (or pot) called TAX
- Every month, transfer your chosen percentage into it
- Don’t use it for anything else
This is the easiest method for most sole traders.
Method 2: The “percentage split” method (best if income is irregular)
Every time you’re paid, split the money immediately:
- X% to tax pot
- X% to bills/overheads pot
- the rest is your spending/owner pay
This works brilliantly if your income comes in bursts and you want instant control.
The tax buffer: your stress-free safety net
Even with a good percentage, there will be months where:
- profit is higher than expected
- you have fewer expenses
- you get a late payment that lands in the same tax year
That’s why a buffer matters.
A simple approach:
- keep a small extra cushion in the tax pot (even a few hundred pounds)
- review it quarterly
The buffer turns “tax panic” into “tax handled.”
The monthly check-in that keeps you on track (10 minutes)
Once a month, do this quick review:
- Total income for the month
- Total expenses for the month
- Estimated profit
- Amount moved to tax pot
- Any big changes coming next month (quiet period, new costs, price increases)
This ties into the earlier article in the series: a simple monthly money routine keeps you in control.
Common mistakes to avoid
- Waiting until January to think about tax
- Assuming you’ll “catch up later”
- Using the tax pot for cash flow emergencies (it always comes back to bite)
- Not keeping receipts/records (you can’t claim what you can’t evidence)
- Forgetting payments on account (if applicable)
Where Zenith Book Keeping can help
Tax becomes far less stressful when your bookkeeping is clean and your numbers are current.
Zenith Book Keeping can help you:
- keep your records accurate and up to date
- understand your real profit (so tax estimates are realistic)
- set a sensible tax-saving percentage for your situation
- build a simple monthly routine that keeps you in control
- get the best from your bookkeeping software (or choose the right one if you don’t use one yet)
The goal is simple: no surprises, no panic, just clarity.
Key takeaways
- Tax shocks happen when you don’t have a system
- Tax is based on profit, not turnover
- A separate tax pot + a consistent percentage removes most stress
- Review monthly, adjust quarterly
- Clean bookkeeping turns guessing into confident planning
Ready to make tax simple in early 2026?
If you’re self-employed and you want 2026 to be the year tax stops feeling like a shock, now is the time to set up a simple system.
Zenith Book Keeping is currently running a special early-2026 offer with a discount for new clients who sign up in the early part of 2026.
If you’ve been meaning to get organised, get clarity, and stop worrying about the next bill from HMRC, this is your moment.
Take a look at Zenith’s current special offer and see how quickly you can move from tax stress to tax confidence.
