How Much Tax Should I Be Saving as a Sole Trader or Company Director?

Scott Pheby
12 hours ago
3 min read

One of the most common (and stressful) questions UK business owners ask is: “How much tax should I be setting aside?”

If you’re self-employed or running a limited company, tax isn’t deducted automatically like it is for employees. That means it’s your responsibility to plan ahead, and getting it wrong can lead to nasty surprises when your tax bill arrives.

This guide explains how much tax you should typically be saving as a sole trader or company director, and how to avoid under- or over-saving.

Why Saving for Tax Is So Important

When you work for yourself, tax bills often arrive months after you’ve earned the money. Without planning, it’s easy to spend income that actually belongs to HMRC.

Saving regularly for tax helps you:

Avoid cash flow shocks
Reduce stress at Self Assessment time
Make better decisions about pricing and growth

How Much Tax Should a Sole Trader Save?

As a sole trader, your profits are subject to:

Income Tax
National Insurance (Class 2 and Class 4)

Typical Rule of Thumb

Most sole traders should set aside 25%–30% of profits.

However, this varies depending on income level:

Rough Guide

Low profits (under £20,000): 20%–25%
Mid-range profits (£20,000–£50,000): 25%–30%
Higher profits (£50,000+): 30%–40%

These percentages cover Income Tax and National Insurance combined.

Example (Sole Trader)

If your monthly profit is £3,000:

Save around £750–£900 per month for tax

This ensures you’re prepared when your Self Assessment bill is due.

How Much Tax Should a Company Director Save?

If you run a limited company, tax is split between:

Corporation Tax (paid by the company)
Personal tax on salary and dividends

Corporation Tax

Limited companies currently pay Corporation Tax on profits. A safe estimate is to save 19%–25% of company profits, depending on your total profit level.

Dividend Tax

If you take dividends, you’ll also need to save for dividend tax:

Basic rate taxpayers: usually 8%–10%
Higher rate taxpayers: 20%–25%

Example (Limited Company Director)

Company profit: £60,000

You might save:

£12,000–£15,000 for Corporation Tax
10%–25% of dividends for personal tax

Many directors set aside 30%–35% of profits overall as a buffer.

The Biggest Mistake Business Owners Make

The most common issue we see is saving based on turnover instead of profit, or not saving at all.

Other common mistakes include:

Forgetting payments on account
Not accounting for higher-rate tax
Taking too much money out of the business
Assuming next year’s tax bill will be “about the same”

A Simple Way to Stay on Track

Many clients find it helpful to:

Open a separate tax savings account
Transfer a fixed percentage every time they get paid
Review tax savings quarterly (not just once a year)

This turns tax saving into a habit rather than a panic.

Why the “Right” Amount Is Different for Everyone

The correct amount to save depends on:

Your total income
Whether you have other income (employment, rental, dividends)
Pension contributions
Allowable expenses
Marriage allowance or child benefit charges

That’s why estimates are helpful, but personalised advice is better.

Final Thoughts

As a general guide:

Sole traders: save 25%–30% of profits
Company directors: save 30%–35% of profits

But these are only starting points. The best approach is to review your numbers regularly and adjust as your business grows.

At Highway 61, we help business owners understand their tax position clearly, so there are no surprises and no sleepless nights.

Not sure if you’re saving the right amount for tax? Get in touch today for a tailored review and clear, practical advice.