How to Budget for Self Assessment Payments All Year Round
- 2 days ago
- 5 min read
For many sole traders, landlords, freelancers, and small business owners in the UK, January can be one of the most stressful months of the year.
Not only are you recovering from the Christmas period, but you may also be faced with a large Self Assessment tax bill. Sometimes made even bigger by payments on account.
The good news is that it doesn't have to be this way.
With a little planning throughout the year, you can build up your tax savings gradually and avoid the panic of finding thousands of pounds at the last minute.
At DUO Accountants, we encourage clients to treat tax as a regular business expense rather than a once-a-year surprise. Here's how you can budget for your Self Assessment tax bill with confidence.
Why Is Budgeting for Tax So Important?
One of the biggest mistakes new business owners make is assuming all the money in their business bank account belongs to them. It doesn't. Part of your income will eventually need to be paid to HMRC as:
Income Tax
Class 4 National Insurance (if you're self-employed)
Payments on account (where applicable)
If you spend everything you earn without setting money aside, you could find yourself struggling when your tax bill arrives.
Budgeting throughout the year helps you:
avoid financial stress
improve cash flow
reduce the risk of missing tax deadlines
make better business decisions
know exactly how much money is available to spend
Know When Your Tax Is Due
Understanding the key Self Assessment deadlines makes budgeting much easier.
Date | What Happens |
31 January | Pay your balancing payment for the previous tax year and your first payment on account (if applicable) |
31 July | Pay your second payment on account |
If you're required to make payments on account, you'll effectively be making tax payments twice each year. Knowing these dates allows you to prepare well in advance.
Estimate Your Tax Early
Don't wait until you complete your tax return to find out what you owe. Instead, estimate your likely tax bill throughout the year.
Your estimate should take into account:
business profits
rental income
other taxable income
allowable business expenses
pension contributions
payments on account, if applicable
Many accounting software packages can give you an estimate as your records are updated, making it easier to avoid surprises. Your accountant can also help you estimate your tax before the end of the tax year.
Set Aside Money Every Time You're Paid
One of the easiest ways to budget is to save part of every payment you receive.
For example, if a client pays you £1,000, transfer a percentage into a separate savings account straight away.
This way, the money is reserved for tax before you're tempted to spend it. Many business owners find this much easier than trying to save a large amount just before the deadline.
How Much Should You Save?
There's no single percentage that works for everyone because everyone's tax situation is different. Your tax bill depends on factors such as:
your income
allowable expenses
whether you're a sole trader or landlord
other sources of income
pension contributions
whether you're making payments on account
As a general guide, many self-employed people choose to set aside 20% to 30% of their income, but the right amount for you may be higher or lower depending on your circumstances. If you're unsure, ask your accountant to help you calculate a suitable monthly saving target.
Open a Separate Tax Savings Account
Keeping your tax money separate from your everyday spending can make budgeting much easier. Many people choose to:
keep a dedicated savings account for tax
transfer money into it every week or month
avoid using it for business expenses
This gives you a much clearer picture of how much money is actually available to spend.
Review Your Finances Every Month
Budgeting isn't something you do once a year. Set aside time each month to review:
your income
your expenses
your profit
how much you've saved for tax
whether your estimated tax bill has changed
Regular reviews mean there are fewer surprises later on.
Don't Forget Payments on Account
Many taxpayers are caught out by payments on account. If your Self Assessment tax bill is more than £1,000 and less than 80% of your tax has been collected through PAYE, HMRC may ask you to make advance payments towards next year's tax. These payments are due on:
31 January
31 July
When planning your budget, don't just save for this year's tax. You may also need to budget for payments on account if they apply to you.
Use Accounting Software
Good bookkeeping makes budgeting much easier. Cloud accounting software can help you:
monitor your income and expenses
keep your records organised
estimate your tax position
prepare for Self Assessment
work more efficiently with your accountant
Keeping your records up to date means you'll have a better understanding of your finances all year round.
Build an Emergency Buffer
Business income isn't always predictable. Clients may pay late, rental properties may need unexpected repairs, or sales may slow down. Having a small emergency fund alongside your tax savings can help you avoid dipping into money you've set aside for HMRC.
Example: James is a self-employed electrician. He earns around £4,000 per month after business expenses. Instead of waiting until January, he transfers 25% of his monthly income into a separate savings account every month. When his Self Assessment tax bill arrives, he already has most of the money available, making the payment far less stressful.
Frequently Asked Questions
What if I earn different amounts each month?
That's perfectly normal. Rather than saving a fixed amount, consider saving a percentage of every payment you receive. This means your tax savings rise and fall with your income.
What if I save too much?
If you've set aside more than your tax bill, you'll simply have extra savings available after you've paid HMRC. Many people choose to leave the surplus in their tax account to help fund next year's bill.
Can my accountant tell me how much to save?
Yes. One of the most valuable things your accountant can do is estimate your likely tax bill during the year so you know roughly how much to set aside.
What happens if I don't save enough?
If you don't have enough money available when your tax payment is due, you may have to use personal savings, borrow money, or discuss payment options with HMRC. You may also face interest and penalties if payments are made late.
Practical Tips for Staying on Track
Here are a few simple habits that can make budgeting easier:
Transfer tax savings as soon as you're paid.
Keep your bookkeeping up to date.
Review your finances every month.
Keep business and personal finances separate.
Don't ignore payments on account when estimating future tax.
Speak to your accountant if your income changes significantly during the year.
Small, consistent actions throughout the year can make a big difference when tax deadlines arrive.
How DUO Accountants Can Help
Budgeting for tax doesn't have to be complicated. At DUO Accountants, we help sole traders, landlords, freelancers, and small business owners understand their tax obligations before the deadlines arrive. We can estimate your likely tax bill, explain how payments on account work, and help you create a simple plan so you're never caught off guard.
Our aim is to make accounting straightforward, giving you the confidence to focus on growing your business while staying on top of your finances.
Final Thoughts
A large Self Assessment tax bill doesn't have to come as a surprise. By setting aside money regularly, keeping accurate records, reviewing your finances each month, and planning for payments on account, you can spread the cost of your tax throughout the year and reduce financial stress.
The earlier you start budgeting, the easier tax season becomes.
If you'd like help estimating your next Self Assessment bill or creating a tax-saving plan that works for your business, DUO Accountants is always happy to help with friendly, practical advice.
