How Much Tax Should You Save Each Time You Get Paid? (Using an Effective %)
If you want tax time to feel calm and predictable, one of the best habits you can build is saving a percentage of your income automatically every time you get paid — so the money is already there when it’s needed.
A lot of people default to saving 20% because basic rate Income Tax is 20%. That can be a decent starting point, but there’s a more accurate (and often more cashflow-friendly) way to do it.
Why a flat 20% isn’t always the best fit
Income Tax doesn’t start until you earn over £12,570 (the Personal Allowance). That means at many common income levels, your overall “all-in” percentage (Tax + employee National Insurance) can be noticeably lower than 20%.
So rather than guessing, you can base your saving percentage on a single number that reflects what you’ll actually pay: your effective rate.
The simple approach: use your effective rate
The UK Income Tax Calculator on SuperSimpleCalculator.com shows an Effective rate, which is:
(Income Tax + Employee NI) as a % of your gross pay
That makes it ideal for setting an automatic “tax pot” percentage inside your bank app.
Example: turning the calculator into a saving percentage
Say you enter £25,000 into the calculator. You’ll see an effective rate of around 13.9% (Tax + NI as a % of gross).
If you earned £25,000 last year and you expect to earn roughly £25,000 again, a good, practical setup would be:
- Set your auto tax saving to 14% (rounded up)
- Add a small buffer if you expect income growth: 15% (14% + 1%) or 16% (14% + 2%)
This keeps you comfortably ahead without overdoing it.
How to set your percentage in under a minute
- Take last year’s gross income (or your best estimate for this year).
- Enter it into the UK Income Tax Calculator.
- Read the Effective rate.
- Set your bank’s auto tax pot to that % (rounded up).
- Add +1% to +2% if your income tends to rise.
If your income changes month to month
If you’re not on a steady salary, you’ve still got two easy options:
- Set a slightly higher percentage all year (simple and steady)
- Review every couple of months and adjust the percentage based on your updated projection
Either way, the goal is the same: build your tax pot automatically, little by little.
Monzo isn’t the only option for auto tax savings
Monzo Business is well known for Tax Pots, but there are other accounts that offer a very similar “set aside a percentage automatically” setup — either through a tax pot feature or automated pot rules.
-
Monzo Business – Tax Pots
Lets you choose a percentage of income to automatically set aside for tax each time you’re paid (availability depends on plan). -
Mettle (NatWest) – Pots with transfer rules (including Tax Pots)
You can set a rule to move a percentage of each incoming transaction into a pot, including a tax pot. -
Revolut Pro – Tax Pocket
Revolut Pro includes a Tax Pocket designed for setting money aside for taxes, with options for automatic transfers and schedules. -
Starling (sole traders) – tax estimate + quick set-aside via a Goal
Provides a tax estimate based on account activity and lets you create a Goal to set aside money for your tax bill.
A friendly final note
This method is designed to be simple, practical, and confidence-building: estimate your yearly income, check your effective rate in the calculator, set that as your saving percentage, and add a small buffer if you expect your income to rise.
If your situation is more complex (multiple incomes, student loan, benefits, dividends, salary sacrifice, etc.), this is still a useful baseline — and it gives you a clear starting percentage in seconds.
Quick FAQs
What if I earn under £12,570?
If your annual income is below £12,570 (the Personal Allowance), you usually won’t pay Income Tax. Depending on your circumstances, National Insurance may still apply once you’re above the NI thresholds, so it’s still worth checking your figures with the UK Income Tax Calculator.
Should I save for National Insurance as well?
Yes — if you’re paying employee National Insurance, it’s part of what reduces your take-home pay. That’s why using an effective rate (Tax + NI as a % of gross) is so handy: it rolls both into one simple percentage you can save automatically.
How often should I update my tax pot percentage?
If your income is stable, you can set it once and leave it. If your income changes month to month, a quick review every 1–3 months keeps your percentage nicely aligned with your latest projection.
Should I add an extra buffer percentage?
It’s a nice way to stay comfortably ahead. A common approach is adding +1% to +2% on top of your effective rate, especially if you expect your income to rise.
Does this work for Scotland too?
Yes — Scotland uses different Income Tax bands, which can change the effective rate. The UK Income Tax Calculator includes a Scotland option so you can base your saving percentage on the correct bands.
What if I have dividends, student loans, salary sacrifice, or multiple incomes?
This method is still a great baseline, but your real outcome can vary depending on your situation. If you have extras like student loan repayments, dividends, salary sacrifice, benefits, expenses, or multiple jobs, consider using this as a strong starting point and adding a slightly bigger buffer so you stay ahead with confidence.
Why not just save 20%?
You absolutely can — it’s a simple option. The reason many people choose an effective-rate approach is because Income Tax starts after £12,570, so a tailored percentage can feel more accurate to your income and a bit smoother on cashflow, while still keeping you comfortably prepared.
