How much of every invoice to set aside for tax.

The freelancers who get caught out by a tax bill are almost never the ones who earned too little. They are the ones who had a good year, spent like they had a good year, and met the bill for that year eleven months later with the memory of the money and none of the money.

The fix is mechanical and slightly boring. A fixed percentage of every payment leaves the account on the day it arrives, and what remains is what you earned. That is the whole method. Everything below is how to set the percentage and where to put it.

Rates and rules differ by country, and by whether you are a sole trader, a company, or something in between. Nothing here is a substitute for your accountant setting your number. What is portable is the habit.

Why saving what is left over does not work

The alternative approach is to spend the month normally and put aside whatever survives. It fails for a reason that has nothing to do with discipline.

Freelance income is lumpy and expenses are not. A month with 6,000 in it feels like a rich month, so a laptop gets bought, and then two quiet months follow at 1,800. Averaged over the quarter it was a normal quarter, but the spending decision was made against the peak. By the time the tax bill arrives, the average is what you owe on and the peak is what you lived at.

Taking the percentage first inverts it. A 6,000 month becomes a 4,500 month before you have had a chance to feel rich about it, and the decisions you make are made against a number that is actually yours.

Picking the percentage

Three components. Add them up, then round up.

Income tax. Your marginal rate on the income you expect this year, not the average rate on last year. If a good year would push you into a higher band, use the higher band.

Social contributions. In most countries the self employed pay these separately and they are not small. This is the component people forget, and in some places it is larger than the income tax.

Anything you collect on behalf of the state. If you are registered for VAT, GST or its local equivalent, the tax on your invoices was never yours. It sits in your account looking exactly like income and it is not. It belongs in the set aside at 100 percent of what you charged, less what you can reclaim.

For a lot of self employed people in a lot of countries the first two land somewhere between 25 and 40 percent. If you have never worked it out and need a number this week, 30 percent is a defensible place to start while you find out the real one. Being 5 percent too generous costs you nothing except the use of the money for a few months. Being 10 percent short costs you a bad January.

What it looks like on one invoice

An invoice for 4,000 is paid. Say your worked out rate is 32 percent, and you are not registered for VAT.

• 1,280 moves to the tax account, same day.
• 2,720 is income.

That is the number your rent, your groceries and your holiday get decided against. Not 4,000. There was never a version of this where 4,000 was yours.

If you are registered for VAT at 20 percent, the invoice is 4,000 plus 800. The 800 goes to the tax account in full. The 32 percent comes off the 4,000, not the 4,800, because the VAT was never income. So 800 plus 1,280 leaves, and 2,720 stays. The arithmetic is the same. What changes is that a 4,800 payment is a 2,720 payment, which is a much larger gap than it looks.

Where to keep it

Three rules, in order of how much they matter.

A different account. Not a sub category, not a mental note, not a colour in a spreadsheet. A different account, ideally at a different bank, ideally without a card attached to it. Money you can spend by accident is money you will spend by accident.

Somewhere the value cannot fall. This is not the money to be clever with. It is owed to somebody on a known date. Instant access and dull beats anything with a chart.

Automatic, or same day manual. If your bank can move a percentage on every incoming payment, use it. If not, the transfer happens when you mark the invoice paid, in the same two minutes. A rule that runs on a day of the week is a rule that gets skipped in the week you were busy, which is the week the big invoice landed.

Twice a year, check the percentage

Set aside percentages drift out of date in both directions. A year where you crossed into a higher band, a year with a lot of deductible equipment, a change of status, a change of country. Look at it every six months against your actual income to date, and after your accountant has seen anything.

If the account is running well ahead of the real bill, move the surplus out deliberately at the review rather than quietly borrowing from it in a slow month. Borrowing from the tax account is the single most common way this system fails, and it never fails in one go. It fails as three small withdrawals that were definitely going to be put back.

If you are paid in crypto

The habit is the same and one thing changes: the set aside has to hold its value between the day the money arrives and the day the bill is due, which can be a long way apart.

In most places the taxable amount is fixed at the moment of receipt, converted to your local currency at that day's rate. That fixes what you owe. It does not fix what your reserve is worth. Setting aside 32 percent of a payment in a volatile coin and finding it is worth 20 percent of the bill in January is a self inflicted problem with no upside worth the risk.

So convert the set aside on the day it lands, into your local currency or into a stablecoin you are comfortable holding, and record the rate you used. That rate is also the number your accountant will ask for. The other costs of being paid this way, the ones that quietly reduce what you actually received, are worked through here.

Making it happen without thinking about it

The reason this fails is never that people disagree with it. It is that the moment money arrives is the moment attention is somewhere else, and the transfer is remembered in the evening, and then it is not.

So the useful thing is anything that makes the arrival itself into the trigger. Money in covers the invoice side in Orla: what has been sent, what has been paid, what is late, and payments recorded against the invoice they belong to rather than as an anonymous credit. What you get from that is a percentage applied to a known number on a known day, instead of a reconstruction in the spring. The rest of the freelance side, including income that arrives on a chain, is on this page.

The one sentence version

Decide a percentage, take it off the top on the day the money lands, keep it somewhere dull and separate, and check the percentage twice a year. The number is worth getting right. The habit is worth more.