Why the self-employed pay tax in advance
When you have a job, your employer takes income tax out of every paycheck and sends it to the tax office for you. When you work for yourself, nobody does that. Tax authorities in many countries do not want to wait until the end of the year for a single large payment, so they ask the self-employed to pay during the year instead, in instalments based on what you are expected to earn. The names vary: estimated tax, payments on account, preliminary tax, advance tax. The idea is the same everywhere. This catches a lot of new freelancers off guard. Their first tax bill arrives together with a request to start paying next year's tax in advance, and suddenly they owe close to double what they expected.
How it works in a few common systems
The details differ a lot by country, so treat these as examples rather than rules for your situation. In the US, the IRS generally expects estimated tax payments from people who expect to owe at least $1,000 for the year, paid in four instalments spread through the year. In the UK, self-assessment taxpayers whose bill is over £1,000 usually make two payments on account, on 31 January and 31 July, each roughly half of the previous year's bill, with any balance due the following January. Many other European countries issue a preliminary tax assessment based on an estimate you provide or on last year's return, and collect it monthly or quarterly. Rules differ by country, so check with your tax office or accountant to find out which system applies to you and when the dates fall.
Start with an estimate of this year's profit
Whatever system you are in, the core question is the same: how much profit will you make this year? Profit, not revenue. A freelancer who invoices €72,000 and has €12,000 of deductible expenses has €60,000 of profit, and that is the figure tax is based on. The best source for the estimate is your own books. Take your profit for the months so far, look at what is already booked for the rest of the year, and adjust for anything you know is coming, such as a long contract ending or a big equipment purchase. If you are only a few months into the year, last year's profit is a reasonable starting point. A live profit and loss statement makes this a two-minute job instead of an afternoon with a spreadsheet.
A simple way to estimate each payment
Once you have an annual profit estimate, you need an effective tax rate: the share of your profit that will go to income tax and social contributions combined. Your accountant can give you this figure, or you can calculate it from last year's return by dividing total tax paid by profit. Say your estimate is €60,000 profit and your effective rate is 30 percent. Your expected annual tax is €18,000. In a system with four instalments, that is roughly €4,500 per quarter. If you have already paid €4,000 in the first quarter and your profit is running ahead of plan, raise the next payment rather than waiting for the year-end correction. The arithmetic is simple. What makes it hard is not having current numbers to plug in.
Set money aside every time you get paid
The surest way to have the money when an instalment falls due is to stop thinking of it as yours in the first place. Each time a client payment lands, move a fixed percentage into a separate savings account used only for tax. Use your effective rate plus a small margin: if your rate is around 30 percent, setting aside 30 to 32 percent leaves you covered with a little to spare. When an instalment is due, you pay it from that account and your day-to-day balance does not move. At the end of the year, anything left over after the final bill is yours to keep. This one habit removes most of the stress around tax, and it works in every country regardless of how the payment schedule is set up.
Using last year as a safe baseline
Some tax systems let you base your advance payments on last year's tax instead of this year's estimate, and some give you protection from penalties if you do. That can be a useful shortcut when your income is steady or growing slowly. It is risky when your income has jumped. If you earned €40,000 last year and are on track for €70,000 this year, paying in advance based on last year leaves a large balance due at the end, often at the same moment the next year's first instalment is also due. In the other direction, if your income has fallen sharply, many systems let you apply to reduce your advance payments. Ask your tax office or accountant what applies where you live before relying on either approach.
When your income swings
Freelance income rarely arrives in neat, even amounts. A quiet first quarter followed by a very busy summer is normal, and a fixed instalment schedule does not always match that rhythm. The answer is to recalculate at least once a quarter rather than sticking to the number you set in January. If profit is running well ahead of plan, increase the next payment or set aside more. If it is behind, check whether you are allowed to reduce the payment and set aside a little less. Large one-off items deserve special attention: a single €15,000 project in November can change your whole-year tax by several thousand euros. Adding your tax payments to a seasonal cash flow forecast shows whether each one lands in a comfortable month or a tight one.
A quarterly routine that takes 20 minutes
Put a short review in your calendar at the end of each quarter. First, make sure your books are current: all invoices sent, expenses recorded, bank reconciled. Second, check your profit for the year to date and update your estimate for the full year. Third, multiply by your effective rate, subtract what you have already paid in advance, and compare the result with what is in your tax account. Fourth, pay the next instalment or adjust your set-aside percentage if needed. Keep a note of each calculation so you can see how your estimate changed over the year. If this sounds like the month-end close, that is because it is the same habit at a slightly lower frequency. For more ways to lower the bill legally, see our small business tax tips.
See your tax position each quarter
Quarterly estimates only work if your numbers are current, and that is the part Kelvo Books handles. Every invoice you send and every expense you log flows into a live profit and loss report, and the tax summary groups your income, expenses and VAT by quarter, so the figures for each instalment are ready when you need them. You can choose cash or accrual basis, close each period once it is checked, and export a CSV or ledger file for your accountant. The free plan includes 10 invoices a month, unlimited clients and expenses, and the P&L. Pro at €7 a month adds unlimited invoices, reminders and recurring billing. Start at books.kelvo.app and make each tax payment a number you already know.