Let’s face it, no one gets excited about taxes. But if you’re running your own business in the UK, getting into the habit of saving for tax can be a total game changer.
Instead of dreading the end of January or scrambling to pay your Corporation Tax in April, you’ll be calm, collected, and ready.
In this guide, we’ll walk through how much you actually need to save for tax, how to build up a simple savings habit using tools like Monzo, and a few freebies to make life easier.
Why Bother Saving for Tax in Advance?
When you’re employed, tax is sorted before your wages even arrive. But when you’re self-employed or running a limited company, it’s on you to stay ahead.
It’s easy to spend money as it comes in and forget that some of it belongs to HMRC. The result? A last-minute panic when your tax return is due.
A better option is to save a little every time you get paid. Your future self will thank you for it.
Start with a Tax Pot
A tax pot is simply a place where you put money aside to cover your tax bill.
Whenever you get paid, you move a portion into this pot. Then, when your tax is due, the money is ready and waiting. No surprises. No scrambling.
If you use Monzo Business, this is really easy. You can:
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Create separate pots for different taxes such as Income Tax, VAT or Corporation Tax
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Choose a percentage to move into each one
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Label each pot clearly so you know exactly what it’s for
It runs quietly in the background and helps you build a solid buffer without overthinking it.
Bonus tip: Monzo Pro users get six months of Xero free. You can check it out here if you want to simplify both your banking and bookkeeping.
So How Much Should You Actually Save?
This depends on how your business is set up. Let’s break it down.
For Sole Traders
You are responsible for:
Income Tax on profits above your personal allowance
National Insurance (Class 2 and Class 4)
A good rule of thumb is to put aside 25 to 30 percent of your profits. If you earn more than £50,000, consider increasing that to stay ahead of higher tax bands.
For Limited Companies
Your company pays Corporation Tax on profits. You might also pay personal tax if you take money out through dividends or salary.
Try saving 20 to 25 percent of your company profits, plus another 10 to 15 percent of any dividends for personal tax.
If You Are VAT Registered
You collect VAT on behalf of HMRC and pay it over quarterly or monthly, depending on your setup.
This is not your money, so move 100 percent of VAT collected into a separate pot straight away. Treat it like it does not belong to you, because it doesn’t.
A Simple System That Works
Once you know roughly what to save, it’s time to build your routine. Here is a simple way to do it:
Open a tax savings account or use Monzo pots
Set your target percentages for each tax type
Use auto-sorting to move money as soon as it comes in
Check your totals monthly and adjust if needed
Even if your numbers are not perfect right away, it is far better to over-save than to come up short.
What If You Get It Wrong?
If you missed your savings goal or forgot to plan for National Insurance, don’t panic. It happens. Here is what you can do:
Use personal savings or a business buffer to top up
Speak to HMRC about setting up a Time to Pay plan
Avoid future stress by building regular tax savings into your process now
The earlier you catch it, the easier it is to fix.
Helpful Freebies to Get You Started
To make things even easier, we’ve put together a few free resources made just for UK small business owners:
✅ Tax Tables: Find the latest tax rates for income, dividends, VAT and more.
✅ VAT Cheat Sheet: Understand what you can reclaim and how to avoid common mistakes.
✅ Mileage Log: Track your travel and claim every mile you are owed.
✅ Financial Checklist: Stay on top of your monthly tasks and avoid missing deadlines.
All of these are completely free and work brilliantly with tools like Xero and Monzo.
Quick Reference Table
Here’s a handy summary to guide your monthly tax savings:
| Business Type | Suggested Savings Amount |
|---|---|
| Sole Trader | 25 to 30 percent of profits |
| Limited Company | 20 to 25 percent of profits |
| Dividend Income | 10 to 15 percent of dividend income |
| VAT Registered | 100 percent of VAT collected |
These are only guidelines. If your income is increasing quickly or your tax situation is more complex, start higher and adjust as needed.
Want Help Setting This Up?
Whether you’re just starting out or you’re ready to fine-tune your tax process, we are here to help.
👉 Book a free call with our team and we will walk you through setting up your tax pots, choosing the right percentages, and syncing everything with Xero or Monzo.
You will leave feeling confident, organised and in control of your tax.
Final Thoughts
Saving for tax might not be the most exciting part of running a business, but it makes everything else run more smoothly. Once you get into the habit, it becomes second nature.
So now is a great time to take action. Create a few pots. Set your percentages. Use smart tools. Download our freebies.
Most importantly, give yourself peace of mind.
You’ve got this.
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