The short answer
- Most freelancers can bill about 200 days a year, not 260, once holidays, bank holidays, sickness and admin are counted.
- To take home £40,000 as a sole trader, with £3,000 of costs and 202 billable days, you need about £261 a day.
- An employee would need a salary of about £50,763 for the same take-home, partly because self-employed National Insurance is lower.
- Above £90,000 of turnover you must register for VAT.
Working backwards from take-home
- Decide the take-home pay you need for the year.
- Find the profit that leaves that much after Income Tax, Class 4 National Insurance and any student loan.
- Add your business costs to get the turnover you need.
- Divide by the days you can actually bill.
The calculator does all four steps, using the same sole trader tax engine as our sole trader tax calculator.
How many days you can really bill
| Item | Days |
|---|---|
| Weekdays in a year (52 × 5) | 260 |
| Holidays (5 weeks) | − 25 |
| Bank holidays | − 8 |
| Sickness | − 5 |
| Admin, sales and training | − 20 |
| Billable days | 202 |
Gaps between contracts are the biggest unknown. In your first year, or in a slow market, you might bill far fewer days. Add extra non-billable days to see how your rate changes.
Day rates for common targets
| Take-home a year | Profit needed | Day rate | Employee salary for the same take-home |
|---|---|---|---|
| £30,000 | £36,125 | £194 | £36,778 |
| £40,000 | £49,638 | £261 | £50,763 |
| £50,000 | £66,705 | £345 | £68,004 |
| £60,000 | £83,946 | £430 | £85,246 |
| £80,000 | £127,283 | £645 + VAT | £128,705 |
Worked example
- Profit needed£49,638
- Income Tax£7,413.60
- Class 4 National Insurance£2,224.08
- Turnover: profit + £3,000 costs£52,638
Tax and National Insurance for sole traders
Sole traders pay Income Tax on profit at the same rates as employees: 20% from £12,570, 40% from £50,270. National Insurance is different: Class 4 at 6% between £12,570 and £50,270 and 2% above, instead of an employee’s 8%. Class 2 is no longer compulsory, but people with profits under £7,105 can pay it voluntarily to protect their State Pension. Tax is paid through Self Assessment, not through each invoice.
Why a day rate is more than salary ÷ 260
- Paid holiday
- 28 days including bank holidays
- Sick pay
- At least SSP
- Pension
- Employer pays at least 3%
- Costs
- Paid by the employer
- Paid holiday
- None
- Sick pay
- None
- Pension
- All your own
- Costs
- Yours: equipment, insurance, software
A freelancer charging £200 a day for 202 days earns £40,400 a year in turnover; an employee on a salary of £52,000 divided by 260 days would seem to earn the same per day, but with paid holiday, sick pay and pension on top.
Business costs to include
- Professional indemnity and public liability insurance;
- software, subscriptions, phone and broadband (the business share);
- equipment such as a laptop, spread over its life;
- accountant’s fees and bank charges;
- travel to client sites that are not your regular workplace;
- training, memberships and marketing.
Allowable costs reduce your taxable profit. Check what counts with the allowable expenses checker.
VAT and your day rate
Once your turnover goes over £90,000 in any 12 months, you must register for VAT and add 20% to your invoices. Business clients usually reclaim it, so it does not cost them anything, but consumers cannot. In the table, a £80,000 take-home needs turnover of £130,283, well over the threshold. See the VAT threshold checker.
Paying into a pension
Without an employer, your pension is up to you. Contributions to a personal pension get basic-rate tax relief added by the provider, and higher-rate taxpayers claim the rest through Self Assessment. Enter a yearly contribution under More options to include it in your day rate. Even a few hundred pounds a month makes a large difference over a working life.
Checking your rate against the market
The calculator gives the rate you need; the market decides the rate you can get. Check job boards and freelancer platforms for your skills and area, ask other freelancers, and look at agency rates. If the market rate is well below what you need, you may need to specialise, find better-paying clients or reduce costs. If it is above, charge it.
Sole trader or limited company?
A limited company pays Corporation Tax on profit and you pay yourself through a mix of salary and dividends. At higher profits this can save tax, though the gap has narrowed since dividend tax and Corporation Tax rose. There is more admin and accountancy cost. Compare with the dividend vs salary calculator.
IR35 and contracting
Contractors working through their own company may fall inside IR35 if the work looks like employment. Inside IR35, the client or fee-payer deducts tax and National Insurance as if you were an employee, which lowers take-home considerably. Check with the IR35 take-home calculator.
Cash flow and setting money aside
Self-employed tax is paid on 31 January and 31 July. In your second year, the January bill can include the whole of your first year’s tax plus a payment on account for the next. A simple rule is to move a share of every invoice, often 25% to 30%, into a separate savings account. Keep three months of costs as a buffer for gaps between work.
Late payment
Business clients who pay late can be charged statutory interest of 8% above the Bank of England base rate, plus a fixed fee.
Raising your rate
Review your rate at least once a year. Raise it for new clients first, and give existing clients notice. As your experience and reputation grow, and as prices and costs rise, your rate should rise too; otherwise inflation quietly cuts your real income each year.
Your first year as a freelancer
The first year is usually the hardest. It takes time to find clients, so expect fewer billable days, perhaps 120 to 160, while you build a reputation and a pipeline of work. You may also have set-up costs such as a laptop, website and insurance. Many freelancers start with savings covering three to six months of living costs, or keep some part-time employment while they build up. Use the calculator with a higher number of unpaid days to see the rate you would need in a slow first year, and remember that tax on your first year is not due until 31 January after the end of the tax year.
Day rates, hourly rates and project prices
Day rates suit work where clients book your time, such as consultancy, design and development. Hourly rates suit short or variable tasks, such as tutoring or repairs. Project prices suit clearly defined pieces of work and can earn more if you are efficient, but carry the risk of overruns. Whichever you use, the calculation underneath is the same: your yearly income need divided by the time you can sell. If you quote by the project, estimate the days it will take and multiply by your day rate, then add a margin for changes.
Insurance and protection
Freelancers have no employer to provide sick pay or death-in-service cover. Many take out professional indemnity insurance, which some clients require, and public liability insurance if they work on client sites. Income protection insurance pays a monthly income if illness stops you working for a long period. These policies cost money, so include them in your business costs or personal budget when you set your rate.
Your State Pension record
With profits above the Small Profits Threshold of £7,105, you get a National Insurance credit towards your State Pension without paying Class 2. If your profits are lower, for example in a quiet first year, you can pay voluntary Class 2 contributions of £3.65 a week to protect your record. You need 35 qualifying years for the full new State Pension.
A part-time example
Someone who wants £25,000 take-home from three days a week has about 120 billable days after holidays and admin. With £2,000 of costs, the calculator shows the rate needed: set days worked a week to 3 and adjust the unpaid days. Part-time freelancing often needs a higher day rate than full time, because fixed costs such as insurance and software are spread over fewer days.
Utilisation: the number that matters most
Utilisation is the share of your available days that you actually bill. At 202 billable days out of 260 weekdays, it is 78%. Many freelancers find 60% to 75% is realistic once they count quiet spells. Every 10 days of lost billing on a £261 day rate costs £2,610 of turnover, so a slightly higher rate can protect you against gaps. Track your billed days each month to see how close you are to your plan.
Key numbers
| Item | Amount |
|---|---|
| Personal Allowance | £12,570 |
| Basic rate 20% | £12,571 to £50,270 |
| Class 4 NI | 6% to £50,270, 2% above |
| Small Profits Threshold | £7,105 |
| VAT registration threshold | £90,000 |
| Trading allowance | £1,000 |