Undercharging by just £50 a day costs you £10,000 a year. Not because you’re doing anything wrong — but because when you go self-employed, nobody tells you how to calculate what you actually need to earn.

Setting your rates for the first time is one of the most uncomfortable parts of self-employment. There’s no salary band to anchor to, no manager to tell you what’s reasonable, and a very human instinct to go lower than you should because you’re worried about losing work before you’ve even started.

Most sole traders underprice at the start. Almost all of them look back on their early rates and wince.

This guide gives you the framework to set a rate that works — one that covers your costs, your tax, your time off, and your future — without guesswork.

Disclaimer: I’m a Chartered Accountant, not a financial adviser. The figures in this guide are illustrative and based on typical 2026/27 tax rates. Your actual numbers will depend on your circumstances — use this as a framework and check with an accountant if you’re unsure.

The Fundamental Mistake Most New Sole Traders Make

Most people set their rates by doing one of two things:

1. Dividing their old salary by the number of working days in a year
2. Charging slightly less than a competitor they found online

Both approaches lead to the same outcome: undercharging.

The reason is simple. Your rate as a sole trader needs to cover things your salary never had to — and most people don’t realise this until they’re already working.

When you’re employed, your employer covers:

• Employer National Insurance contributions (~13.8% of your salary)
• Paid holiday (28 days minimum by law)
• Sick pay
• Pension contributions (at least 3% of qualifying earnings)
• Continuity of income — you get paid whether or not there’s work to do

As a sole trader, every single one of these comes out of your rate. There’s no employer absorbing the cost. There’s just you.

The Right Way to Set Your Rate: Work Backwards From What You Need

The most reliable approach is to start with the annual take-home income you want — then work backwards to the rate that gets you there.

Here’s the framework, step by step.

Step 1: Decide Your Target Take-Home Income

What do you actually want to take home each year, after tax?

Be honest here. Think about your mortgage or rent, your regular outgoings, what you’d like to save or invest, and what a comfortable life actually costs you. This is your floor — the minimum you need your business to deliver.

Example: £40,000 net per year.

Step 2: Work Out Your Required Gross Profit

To take home £40,000 as a sole trader in 2026/27, you need to earn more than £40,000 — because you’ll pay Income Tax and Class 4 NI on your profits.

At current 2026/27 rates, to net £40,000 you need gross profits of approximately £55,000–£57,000 (assuming no other income and standard personal allowance).

Use an online tax calculator to get a more precise figure for your situation — HMRC’s income tax calculator is a good starting point.

Step 3: Add Your Business Costs

Your rate also needs to cover the cost of running your business. Add up your annual business expenses:

• Accounting software
• Professional insurance
• Phone and broadband (business proportion)
• Equipment and tech replacement
• Marketing and website costs
• Training and professional development
• Accountant fees
• Any other regular business costs

Example: £5,000/year in business costs.

Your total gross income target is now: £55,000 + £5,000 = £60,000

Step 4: Add Pension Contributions

If you want to put anything aside for retirement — and you should — add that to your target too.

Example: £200/month = £2,400/year.

New target: £62,400

Step 5: Calculate Your Realistic Billable Days

Here’s the number most people get badly wrong. A standard working year has around 260 days. But as a sole trader, you won’t bill all 260:

• Holiday: 25 days (you deserve a break)
• Bank holidays: 8 days
• Sick days: allow at least 5 days
• Admin, invoicing, marketing: roughly 1 day per week = 46 days
• Quiet periods, gaps between projects: allow 10–15 days

Realistic billable days: approximately 165–190 per year.

Most sole traders can bill around 180 days when they’re established and busy. If you’re starting out, 150 days is a more conservative estimate while you build your client base.

Example: 180 billable days.

Step 6: Calculate Your Day Rate

Divide your annual income target by your billable days:

£62,400 ÷ 180 = £347/day

That’s your floor — the minimum day rate that gets you to your target take-home. You haven’t built in any margin yet for quiet months, business growth, or unexpected costs. Add 10–20% for a sustainable rate.

Sustainable day rate: £380–£420/day

Working Out an Hourly Rate

If you charge by the hour rather than the day, divide your day rate by the number of hours in your working day — typically 7 or 8.

£400 ÷ 8 = £50/hour

The Real-World Comparison: Your Rate vs a Salary

One of the most useful ways to sense-check your rate is to compare it to the equivalent employed salary — because clients often do this, and you might too.

Here’s the reality:

These figures look higher than many new sole traders charge. They’re not unreasonable — they’re what’s required to match the equivalent employed income once you account for tax, NI, holidays, and downtime.

A £400/day rate that looks expensive compared to a £50,000 salary often results in the same take-home once you account for everything employment provides that self-employment doesn’t.

Other Factors That Should Influence Your Rate

The calculation above gives you your floor. Your actual rate should also reflect:

Your Experience and Specialism

A generalist charges the going rate. A specialist charges a premium. The more specific and valuable your expertise, the more you can — and should — charge for it.

If you have ten years of experience in a niche area, don’t price yourself as a generalist. Identify where your experience is deepest and price from that position.

Your Market and Industry

Rates vary significantly by sector, seniority, and location. A senior UX designer in London commands different rates to a freelance social media manager in the Midlands. Know your market and benchmark against it — not just by asking colleagues, but by looking at job boards, rate surveys, and what clients are actually paying.

Remote working has narrowed some regional gaps, which means regional freelancers can increasingly access London-rate clients without paying London costs.

Your Client Type

Larger organisations and corporate clients typically have higher budgets than small businesses or startups. Your rates don’t have to be the same for everyone — it’s entirely legitimate to price differently depending on the scope, the client, and the value of the work.

The Value You Deliver, Not Just the Time You Spend

Hourly and day rates anchor your income to time. Project-based pricing anchors it to value — which can work significantly in your favour if you’re fast, experienced, or delivering work that has an outsized impact for the client.

A marketing consultant who writes copy that generates £50,000 in sales isn’t selling time. Neither is the accountant who saves a client £20,000 in tax. Pricing on value rather than time is harder to establish, but worth exploring as you become more established.

How to Handle the “What Do You Charge?” Question

This is the moment most new sole traders dread. Here are a few things that help:

State your rate confidently and then stop talking. The most common mistake is immediately following a rate with a justification or an apology. Quote the number and let it land. Silence after a price is normal — it doesn’t mean they think it’s too expensive.

Have a number in mind before every conversation. Deciding your rate on the spot in a client call leads to undercharging under pressure. Know your floor and your ideal rate before you pick up the phone.

Don’t immediately discount if they push back. “That’s more than we expected” is not a no. Ask what they had budgeted, understand the scope, and see if there’s a way to structure the work differently rather than simply dropping your rate.

Raise your rates annually. Inflation is real. Your skills are growing. Your costs are increasing. If you haven’t reviewed your rates in over a year, they’re probably due an increase. The discomfort of telling existing clients about a rate rise is almost always less than you expect.

A Note on Pricing Yourself Out of the Market

New sole traders worry about this far more than they should.

The clients who are right for you will pay your rate. The ones who aren’t won’t — and that’s fine. A client who haggles before the work has started is often the same client who disputes invoices, asks for extra work within existing fees, and takes the longest to pay.

Losing a client because your rate is too high isn’t failure. It’s filtering. The clients worth having are the ones who value what you bring and pay accordingly.

Members of The Self Employed Club get exclusive deals on the tools that make running your business easier — accounting software, business banking, invoicing tools, and more. The less you spend on your business costs, the more of your rate you keep. Browse deals →

When to Review Your Rates

At minimum: once a year. More often if:

• Your costs have increased significantly
• You’re consistently at full capacity and turning away work
• You’ve gained significant new skills or experience
• Inflation has eaten into your take-home
• You’ve realised you’re significantly below market rate

The right time to review isn’t when you’re desperate — it’s when things are going well and you have the confidence to hold your ground.

Quick Reference: Rate-Setting Checklist

• Work out your target annual take-home income
• Calculate the gross profit needed to achieve it (add back tax and NI)
• Add your annual business costs
• Add pension contributions
• Estimate realistic billable days (150–180 depending on stage)
• Divide to get your floor day rate
• Add 10–20% margin for a sustainable rate
• Check against market benchmarks for your sector
• Review annually

Read => How to Keep More of What You Earn as a Sole Trader
Read => Allowable Expenses for Sole Traders: The Full List
Read => Self-Employed Tax: How It Works and What You Need to Know
Read => Self Assessment Tax Return for Sole Traders: A Step-by-Step Guide

FAQs

How do I calculate my day rate as a sole trader?

Start with your target annual take-home income, gross it up for tax and NI, add your business costs and pension contributions, then divide by your realistic billable days (typically 150–180). Add 10–20% margin on top for a sustainable rate.

How many billable days should I plan for as a sole trader?

Most established sole traders bill around 180 days per year once holidays, bank holidays, admin time, and quiet periods are accounted for. If you’re just starting out, 150 days is a more conservative estimate while you build your client base.

Why do I need to charge more than my equivalent salary?

Because your rate needs to cover everything an employer would otherwise provide — paid holiday, sick pay, employer NI contributions, pension contributions, and gaps between work. A £400/day rate often produces the same take-home as an equivalent salaried job once all of these are accounted for.

How do I know if my rate is competitive?

Research your sector — look at job boards for equivalent employed roles, freelance rate surveys, and what peers are charging. Rates vary by industry, seniority, specialism, and client type. Your floor is what you need; your ceiling is what the market will support.

How do I tell an existing client I’m raising my rates?

Give them reasonable notice (typically 30–60 days), be direct and matter-of-fact about it, and don’t over-explain or apologise. Most clients expect rates to increase over time. Those who don’t are often not your best clients anyway.

Should I charge by the day, hour, or project?

All three are legitimate. Day and hourly rates work well for ongoing or variable scope work. Project-based pricing works well where the scope is clear and the value delivered outweighs the time involved. As you become more experienced, project pricing often works in your favour.

Where can I find deals on tools to reduce my business costs?

The Self Employed Club — free membership with deals on accounting software, banking, insurance, and more. Lower costs mean more of your rate goes in your pocket. Join free →

Read => Deals and Discounts for Sole Traders: What’s Available in 2026