Sole Trader Cash Management: Earn Interest on Tax Money (UK)
Self-employed? The cash you set aside for HMRC sits idle for up to 18 months. Most sole traders leave the interest with the bank instead of themselves. The fix takes one afternoon.
Personal Savings Allowance by tax band, 2026/27
Interest above the PSA is taxed at your marginal rate. Additional-rate earners should consider a Cash ISA.
Sole trader cash buckets: where each pound belongs
| Bucket | Time horizon | Where to hold it |
|---|---|---|
| Working capital | Weeks | Business current account |
| Tax float (25-40%) | 1-13 months | Easy-access or notice savings |
| VAT (if registered) | Quarterly | Separate easy-access account |
| Emergency fund | 3-6 months | Easy-access savings or Cash ISA |
Three accounts, three jobs. The tax float is HMRC's money - keep it earning interest until they ask for it.
Key takeaways
Self-employed people set aside 25 to 30 percent of net profit for tax and National Insurance, but that money sits in an account for months between earning it and paying it. That is interest you are leaving on the table if it is in a current account.
Park the tax float in a separate easy-access savings account. The interest earned is yours to keep; only the original tax owed goes to HMRC.
Watch the Personal Savings Allowance: £1,000 of savings interest tax-free if you are basic-rate, £500 at higher rate, £0 at additional rate. Above the allowance you owe income tax on the interest itself.
Treat working capital, tax float and emergency fund as three separate buckets, in three separate accounts, with three different time horizons.