Self-employed? Who is withholding your tax?

When you are self-employed, nobody withholds anything

As an employee, your employer takes tax and contributions off every paycheque and sends them in for you. As a self-employed person, that stops. A client paying your invoice usually withholds nothing: you receive the full amount.

That money is not all yours, though. You are responsible for paying your own income tax and contributions, generally when you file your return.

The trap: every dollar looks available

Because nothing is withheld, your bank balance gives the wrong impression. Part of that money already belongs to the tax bill. If it gets spent during the year, the bill lands all at once at tax time, with contributions on top.

The habit that solves it

The fix is simple: every time a payment comes in, move a share of it into a separate account set aside for tax. You do not touch that account for everyday spending.

• Every payment feeds the tax account, no exceptions.
• The share is based on your estimated net income, not a random number.
• You revisit it during the year, especially if your income grows.

There is no percentage that fits everyone. Your net income, your deductible expenses and your contributions all change the amount. The right number comes from your own books.

What about instalments?

Once the tax you owe passes a certain threshold, you may be expected to pay it in instalments during the year instead of all at once. The tax account then simply pays those instalments as they come due. We cover the thresholds and dates in our article on paying tax by instalments.

What we do

We keep your books current and estimate your tax and contributions from your real numbers. You know how much to put aside from every payment, and tax time stops being a surprise.