Finance⏱ 5 min read
How to Calculate Projected Income for Self-Employment
Freelancers and sole traders need to forecast income for tax planning, mortgage applications, and business planning. Here is a realistic framework including seasonality and late-payment risk.
Projecting self-employment income is less precise than a salary — but a structured approach produces forecasts accurate enough for tax planning and financial decisions.
Building a Monthly Revenue Forecast
Start with known contracted revenue:
Confirmed clients with agreed fees: £X/month (certain)
Likely repeat clients: £Y/month (probable, 80%+ confidence)
Prospective clients in pipeline: £Z/month (possible, 30-60% confidence)
Conservative forecast = Confirmed + (Probable x 0.8) + (Possible x 0.4)
Example:
Confirmed: £4,500/month
Probable: £2,000/month x 0.8 = £1,600
Possible: £3,000/month x 0.4 = £1,200
Conservative monthly projection: £7,300
Annual Projection with Seasonality
Most freelance sectors have seasonal patterns:
- Christmas slowdown (December-January)
- Summer slowdown (July-August for B2B)
- Budget release peaks (April, October for corporate clients)
Simple seasonality adjustment:
Take conservative monthly baseline: £7,300
Apply index by month (1.0 = normal):
Jan: 0.7, Feb: 0.9, Mar: 1.0, Apr: 1.1, May: 1.0
Jun: 1.0, Jul: 0.85, Aug: 0.75, Sep: 1.0, Oct: 1.1
Nov: 1.05, Dec: 0.7
Annual total = £7,300 x sum of indices
= £7,300 x 11.15 = £81,395/year
Adjust based on your own sector's historical patterns.
Late Payment and Bad Debt Provision
UK SMEs experience significant late payment:
Average payment terms: 30-60 days
Average actual payment: 42-52 days
Late payment doesn't reduce income — it defers cash flow.
Bad debt (non-payment): provision 1-3% of invoiced revenue
Revenue: £81,395
Bad debt provision (2%): -£1,628
Adjusted projected income: £79,767
Cash flow timing note:
If you invoice in month 1 and get paid in month 2.5:
January revenue received in mid-March
This affects cash flow planning even if annual total is correct.
Tax and National Insurance on Projected Income
Sole trader tax (2024/25) on £79,767:
Income tax:
0% on £12,570 = £0
20% on £12,571-£50,270 = £7,540
40% on £50,271-£79,767 = £11,799
Total income tax: £19,339
Class 2 NI (flat rate): £3.45/week x 52 = £179
Class 4 NI: 6% on £12,570-£50,270 = £2,262
2% on £50,271-£79,767 = £590
Total NI: £3,031
Total tax: £22,370
Net income: £79,767 - £22,370 = £57,397
Effective tax rate: 28.0%
Tax reserve to set aside: 28% of monthly invoiced income