HiddenFreelancers get paid in lumps, but tax arrives later and all at once. A simple system fixes that: invoice promptly, and move a fixed share of every payment into a separate account the day it arrives.
Invoice habits that get you paid
- Number every invoice in sequence. Gaps and duplicates invite questions from clients and tax offices.
- State the terms on the invoice. Give the due date, the amount, the currency and how to pay.
- Send it the day the work is accepted. Waiting until month end delays the money by weeks.
- Name one person at the client. Invoices addressed to nobody sit in inboxes.
- Chase on a schedule. Send a friendly reminder a few days before the due date and another on the day after it. Keep a short log of each contact.
Your country may require specific details on invoices, such as your tax number or the VAT amount. Check the rules, and put them in your template once.
The separate-account method
- Open a savings account that is only for tax.
- When a payment arrives, move a fixed percentage into it the same day.
- Do not touch it for anything else. Treat it as money that was never yours.
- Once a month, check that the balance matches the percentage of what you received.
- When a tax bill arrives, pay it from this account.
Choosing the percentage
Start from your own numbers. Take last year's total tax bill and divide it by last year's total income. If your bill was EUR 9,600 on income of EUR 40,000, the share is 24%. Round up slightly while you are unsure. If your income changed a lot this year, or you are new to freelancing, ask an accountant for a rate. Review it once a year, and again if your earnings jump.
An example with round numbers: a client pays EUR 1,000 plus 25% VAT, so EUR 1,250 arrives. The EUR 250 of VAT goes to a VAT account, because it is not yours. Of the EUR 1,000, 24% is EUR 240, and that goes to the tax account. EUR 760 is left to cover your costs and living.
One example of why the rule is needed
The IRS gives one reason people are surprised. US self-employment tax is made up of 12.4% for Social Security and 2.9% for Medicare, on top of income tax. The IRS says you usually must pay it if your net earnings from self-employment were $400 or more, and that the taxable amount is generally 92.35% of those earnings. An employee never sees these figures, because the employer handles them. A freelancer pays them directly. Other countries have their own versions, so do not copy these numbers. Look up your own tax authority's rules.
What to treat as an expense
In general, costs that exist only because of your work can often be deducted: software, equipment, a share of a home office, travel for a client job. Keep the receipt, the date and a note of the purpose. Mixed-use items, such as a phone used for work and private calls, usually need splitting. The details differ by country, so ask your accountant, and write the rules into your own notes once you know them.
A 20-minute monthly routine
- Enter every payment received and every invoice sent.
- Mark invoices paid, unpaid or overdue.
- Enter the month's expenses with receipts.
- Move the set-aside share for any payment you have not yet moved.
- Look at the overdue list and send reminders.
- Note your profit for the month against the same month last year.
When clients pay late
Late payment is the usual reason a set-aside plan fails, because the tax date does not move when the client does. Two habits help. First, set the terms short: 14 days is easier to defend than 60. Second, keep one month of costs in a separate buffer, so a late invoice does not tempt you to borrow from the tax account. If a client is repeatedly late, say so in writing, ask for a firm date, and think about asking for a deposit on the next job.
At the end of the year
Because you moved a share every month, the year-end is a check, not a shock. Add up the year's income and costs, compare the balance in your tax account with what you owe, and move any difference. Keep the year's records together in one folder, with invoices, receipts and bank statements, for as long as your country requires.
Mistakes to avoid
- Spending the tax money "just for now." It rarely comes back in time.
- Counting VAT as income. Your take-home looks bigger than it is.
- Using one account for everything. You cannot see your real profit.
- Skipping the log. Without it, an overdue invoice is hard to chase.
- Setting the rate once and forgetting it. Review it when income changes.
Tool that fits
The Freelancer & Small Business Finance Tracker (Excel, EUR 24, paid once) keeps this in one workbook. It has an income log with client and category drop-downs and an automatic Paid, Unpaid or Overdue status, an invoice generator with a printable one-page layout, expenses with VAT and a deductible flag, a monthly profit and loss with a yearly tax set-aside, a dashboard, a clients sheet and a mileage log. It works in Excel 2016 and later, Google Sheets and LibreOffice.
What to do next
The Freelancer & Small Business Finance Tracker keeps income, invoices, expenses and a yearly tax set-aside in one workbook. Excel file, €24 once; it also works in Google Sheets and LibreOffice.
Questions people ask
How much of each payment should I set aside?
There is no single answer, because it depends on your country, your income and your costs. A starting point is last year's total tax bill divided by last year's income, or the rate your accountant gives you. Adjust once a year.
Is VAT part of my income?
No. VAT you charge is money you collect for the tax authority, so keep it apart from the share you set aside for income tax. Check how your country's VAT rules apply to you.
Is this tax advice?
No. It is a bookkeeping habit. Tax rules differ by country and by your situation, so confirm the details with your tax authority or an accountant.
Sources
We checked each source on 16 October 2026. If a fact here is out of date, tell us at hello@hiddenway.info.