One of the most common questions I’m asked is:
“What percentage of my sales should I save for tax?”
The honest answer is — it depends.
There isn’t a simple percentage that works for everyone, because tax isn’t calculated on your sales. It’s calculated on your profit.
And profit depends entirely on your expenses.
Let me show you two examples to explain why using a fixed percentage of sales can be misleading.
The tax and class NIC % used is correct at time of writing.
Example 1: Lower Expenses
- Sales: £60,000
- Expenses: £15,000
- Profit: £45,000
From this profit:
- Personal Allowance: £12,570
- Taxable Income: £32,430
If we calculate Income Tax and Class 4 National Insurance at a combined 26%, the tax due would be approximately:
- Tax & Class 4 NIC: £8,432
That works out to 14% of sales.
Example 2: Higher Expenses
Now let’s look at the same sales figure, but with higher expenses.
- Sales: £60,000
- Expenses: £35,000
- Profit: £25,000
After the Personal Allowance of £12,570:
- Taxable Income: £12,430
Tax and Class 4 NIC at 26%:
- Tax & Class 4 NIC: £3,232
That’s only 5% of sales.
Why This Matters
Both businesses generated £60,000 in sales.
But one needs to set aside 14% of sales for tax.
The other only needs 5% of sales.
That’s a huge difference.
This is why there is no universal rule like “just save 20% of your income.” It might be too much — or not enough.
So, What Should You Do?
Instead of guessing:
- Keep accurate records of your income and expenses
- Review your profit regularly
- Get a personalised tax estimate based on your actual figures
- Set aside money monthly, not just at year end
We offer a monthly bookkeeping service and as part of this we give a realistic estimate of the running tax and Class 4 national insurance liability
Contact us for more details
