Work out the freelance day rate you need to charge to match your current permanent salary. Accounts for employer NI, pension, benefits, billable days and all your business overheads.
Last updated: April 2026
Permanent salary details
Health insurance, gym, travel, bonus etc. Include anything you would lose as a freelancer.
Freelance working pattern
260 working days minus holidays (25), sick days (5), unbillable time (10) = ~220 typical.
Freelance costs
Your equivalent day rate
Minimum day rate needed
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Target rate (20% profit margin) -
Total salary + benefits to replace -
Annual freelance overhead -
Required gross revenue -
Hourly rate (8hr day) -
How to calculate your freelance day rate
The most common mistake freelancers make when setting their day rate is comparing it directly to their permanent salary divided by working days. This ignores employer NI (13.8% of salary above the secondary threshold), employer pension contributions, paid holiday, sick pay, and the overhead costs of running a freelance business. A permanent employee earning £55,000 costs their employer around £65,000–£70,000 in total employment costs. This is the figure your day rate needs to recover, plus your freelance-specific overheads.
Accounting for unbillable time
A common figure used in freelance rate calculations is 220 billable days per year - 260 working days minus 25 days holiday, 5 days sick, and 10 days for admin, business development, and unbillable time. Some freelancers achieve 230+ days, others struggle to reach 180 days, particularly when starting out. The fewer billable days you can achieve, the higher your day rate needs to be to generate the same income. If you are planning to freelance and can negotiate a long-term contract that keeps utilisation high, that is significantly more valuable than maximising the headline rate.
The 20% profit margin rule
Simply recovering your costs is not a sufficient target. A good freelance business generates a profit margin of 20–30% above the minimum break-even rate. This provides a buffer for periods of lower utilisation, funds investment in skills and equipment, and reflects the additional risk you take as a self-employed person versus a permanent employee. The target rate shown in this calculator adds 20% to the minimum break-even figure.
Frequently asked questions
For most UK freelancers earning above approximately £30,000–£35,000 per year, operating through a limited company is typically more tax-efficient. A limited company allows you to pay yourself a combination of salary (up to the NI threshold, around £9,100 in 2026/27) and dividends, which are taxed at lower rates than income tax on employment income. You also pay Corporation Tax on company profits rather than income tax and NI directly. However, the administrative overhead is higher - you need to file company accounts, maintain records, and pay an accountant. Sole trader status is simpler but all profit is subject to income tax and Class 4 National Insurance.
IR35 is HMRC legislation designed to prevent disguised employment - where a contractor operates through a limited company but in practice works like a permanent employee of the client. If your engagement falls inside IR35, you are taxed as if you were an employee of the end client, eliminating most of the tax advantages of operating through a limited company. Since 2021, the responsibility for determining IR35 status lies with medium and large clients rather than the contractor. Working through a genuinely independent consultancy model - multiple clients, control over how you work, no substitution restrictions - reduces IR35 risk. If you receive an inside-IR35 determination, the day rate you need to charge increases significantly.
As a guideline, set aside 25–30% of all invoiced income immediately into a separate tax savings account. This covers Corporation Tax (25% main rate from April 2023, 19% small profits rate for profits under £50,000), dividend tax above the annual dividend allowance (£500 from 2024/25), and your own personal tax liability. If you are a sole trader, save 30–35% to cover income tax and Class 4 NI. Your accountant can provide a more precise figure based on your specific situation, but having the tax reserve before your payment dates is essential - HMRC charges interest and penalties on late payments.