How much tax should I be saving each month?

There are 4 types of tax that you may need to save for each month:

1. DIVIDENDS

If you take dividends from your limited company business, you will need to save personal tax for this every time that you get your dividends paid to you. The amount depends on the total dividends that you get in each personal tax year (which runs from April to March each year) and if you have any other income.

In general, if you take a salary of 12.5k a year and dividends between 10-30k a year, you should set side 10% of the dividends to pay tax

If you take between 40-60k you should set aside 25% of this to pay tax.

Between 70-100k, set aside a third of this for tax.

If you do not take the 12.5k salary a year, then you need to save less.

30k of dividends will have under 2k of personal tax, 40-60 will have circa 10% tax, 70-100k is about 20% .

2. VAT

If you are VAT registered, you need to set aside no more than 20% of your sales invoice value for VAT. This is the maximum that you will need to pay every quarter and it is usually reduced by all the VAT you have incurred in buying goods & services.

If you have been doing VAT returns for a while, look at the usual ratio of VAT payable to your sales to see what % is typical for your business. Take the number in your VAT return’s box 5 and divide by box 6 – this is often closer to 15% than 20%, and sometimes even lower.

3. SALARIES / PAYE

If you have staff on salary, you need to set aside a % of their gross salaries to pay to HMRC the month after you pay the staff. The amount varies depending on the salary levels, but you are usually safe if you calculate the total of all wages and taxes as 1.14 times normal salary with between .70-.85 of the salary going to the employee in the month of work and between .29-.34 going to HMRC the next month.

The lower the salary the more goes to the employee and the less goes to HMRC – the higher the salary the less goes to the employee and the more goes to HMRC.

4. CORPORATION TAX

The hardest tax to plan for each month is your limited company’s corporation tax. This is because it is based on many variables and sometimes you do not track all of the variables until your year end. A good way to approximate the corporation tax is to multiply your monthly profit by between 19-25%. This only works if you keep a track of your profit each month (this is NOT the same as your monthly cash flow, so it needs an accounting system that can produce a Profit & Loss Report.)

If your annual profit is <50k, the tax is only 19%. If your annual profit is >250k, the tax is 25% - and there is a sliding scale in between those.

If you do not have a P&L Report, you could try to estimate using your cash flow if you remove from it any dividends and VAT payments and loans.

If you have been in business for a while, look at the usual ratio of corporation tax payable to your sales to see what % is typical for your business. Take the corporation tax number in your accounts and divide by the sales reported in your accounts – this is often between 5-20%. You can then set aside this each month based on your sales – much easier than calculating based on profits.

Heather Darnell FMAAT, 21 May 2026