Quarterly tax planning for locums: the simple 25% rule

Every January, accountants send reminders that the Self Assessment balancing payment is due by the 31st. Every February, some locums realise they do not have the money. The way to never be one of them is a standing rule: set aside a percentage of every invoice the day it arrives.

Why the 25% rule works

A self-employed locum on £60,000 profit in 2026/27 pays roughly:

• Income tax: £11,432. The personal allowance covers the first £12,570; £37,700 falls in the basic-rate band at 20% (£7,540); the remaining £9,730 is above £50,270 and taxed at 40% (£3,892).
• Class 4 NI: £2,457. That is 6% on the £37,700 between £12,570 and £50,270 (£2,262), plus 2% on the £9,730 above £50,270 (£195).
• Total: £13,889, or about 23.1% of profit.

At 25% you are setting aside £15,000 against a £13,889 bill. That is a cushion of about £1,100, not the comfortable margin the round number suggests: less than two points of profit. On a £500 invoice, £125 goes to a separate savings account before you spend a penny of the rest, and by January the account holds what HMRC wants with a little to spare.

The moment anything else lands on top, a student loan, a Scottish tax bill, a payment on account that steps up, that cushion is gone. Treat 25% as the floor for a profit in this range, not the safe answer.

When 25% is not enough

Three situations push your effective rate higher:

You earn over £50,270. Above this threshold income tax is 40%, so each extra pound costs 42% in tax and NI. If your annual income runs around £80,000, set aside 30%. At £100,000+, closer to 35%.

You have student-loan income-contingent repayments. Plan 2 loans charge 9% on income above £29,385 (for 2026/27). Plan 5 at 9% above £25,000. If you have one of these, add roughly 9% to your set-aside on the portion above the threshold.

You are in Scotland. Scottish income tax bands bite harder above £27,491 (the intermediate rate is 21% and the higher rate is 42%). A Scottish resident locum on £55,000 pays around 26% in tax and NI, so set aside 30%.

When 25% is too much

You have substantial legitimate expenses. Your tax is on profit, not turnover. If you routinely have 20% of turnover in allowable expenses (mileage, indemnity, training, phone, home-office), your effective rate on turnover is lower.

You are near the personal-allowance threshold. Profit under £12,570 pays no income tax. Effective NI rate on profit between £12,570 and £50,270 is 6% on the NI-able portion only.

The practical mechanic

1. Open a separate savings account. Label it "HMRC". Resist using it for anything else.
2. Every time an invoice is paid, transfer the percentage that day, before the rest becomes visible.
3. In July of the year after, make your first payment on account. In January, the balancing payment plus the second payment on account. The account should be enough to cover all three.
4. Any surplus at the end of a tax year is the cushion for next year. Do not claim it back into spending money unless the cushion is comfortable.

Payments on account

Self Assessment splits most locums' tax into three payments per year:

• 31 January: balancing payment for the previous tax year + first payment on account for the current year (50% of last year's bill)
• 31 July: second payment on account (another 50%)
• 31 January the following year: balancing payment for the current year

So January hits twice as hard as July. A 25% set-aside smooths this out if you are consistent every month.

Automating it

If you run a sole-trader account with a bank that supports percentage auto-transfers (Starling and Monzo both do), set the rule once and forget it. Some accounting software does the same. Sessional logs every invoice and the set-aside percentage alongside it, so you can see the tax bucket growing through the year.

The rule in one line

Every invoice, 25% off the top, into a savings account you will not touch. Adjust up to 30% over £80,000 gross, down to 20% with substantial expenses. Check our tax calculator for a year-specific figure.

For information only, not regulated advice. Check with a qualified accountant or adviser.