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Saving for Taxes: How to Set Aside the Right Amount

As a self-employed hairdresser, one of the most important tasks is ensuring you're setting aside enough money to cover your tax liabilities. Without a regular income tax deducted from your pay like employees, it's up to you to manage your taxes effectively and avoid any surprises come tax season.

Here's how to set aside the right amount for taxes and ensure your hairdressing business stays financially healthy.

  1. Understand Your Tax Obligations

    The first step in saving for taxes is understanding how much you'll need to pay. As a self-employed individual in the UK, you'll need to pay Income Tax and National Insurance Contributions (NICs). The amount you'll owe depends on your earnings and the tax allowances available to you. Make sure you're aware of your tax band, and remember, the more you earn, the higher the rate of tax you'll pay.

    Additionally, if your income exceeds Β£85,000, you'll need to register for VAT and charge VAT on the services you provide.

  2. Set a Percentage of Your Income

    Once you understand your tax obligations, set aside a percentage of your income throughout the year. A common recommendation is to put aside 20-30% of your earnings, depending on your tax bracket and whether you're VAT registered. By setting aside this amount regularly, you’ll avoid the shock of needing to come up with a large sum at the end of the year.

  3. Create a Separate Savings Account

    To ensure you don't accidentally spend your tax money, open a separate savings account specifically for taxes. As soon as you receive your payments, transfer the allocated percentage directly into this account. This way, you’ll know exactly how much you have available for your taxes and won’t be tempted to dip into those funds for other business expenses.

  4. Track Your Income Regularly

    Consistently tracking your income is essential to ensuring you’re setting aside enough for taxes. Use FroHub to monitor your bookings and revenue, which will give you an accurate picture of your earnings. By knowing how much you're earning each month, you can make adjustments to your savings if necessary.

  5. Set Aside for Other Costs

    In addition to taxes, there are other costs you’ll need to plan for, such as business expenses, National Insurance Contributions (NICs), and pension savings. These all need to be factored into your financial planning.

  6. Consider Quarterly Payments

    If you expect to owe over Β£1,000 in taxes at the end of the year, HMRC may ask you to make quarterly payments through the year (known as β€˜payments on account’). Be sure to factor these payments into your savings plan so you can stay on top of your tax responsibilities.

  7. Review and Adjust Regularly

    Tax laws and your income can change, so it’s important to review your tax savings regularly. If your income increases or decreases, adjust the percentage you set aside to ensure you’re on track. Keeping a buffer will help you avoid any surprises.

Setting aside the right amount for taxes is one of the best ways to ensure you stay on top of your finances and avoid last-minute scrambling at the end of the year. Regularly saving a portion of your income for taxes, using a dedicated savings account, and tracking your earnings will help you stay organised and prepared.

Tip: Use FroHub to track your earnings and set income goals, making it easier to manage your finances and save for tax season.

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