Setting your day rate
When you first start as a contractor it can be a bit of a stab in the dark when it comes to pricing your services. If you charge too little then you are selling yourself short. But if you go in too high, clients won’t touch you. So, it’s important to come up with a rate that not only covers all your taxes, downtime, and expenses, but also that’s competitive in your sector.
The rules of thumb
- Start with your employee salary . If you previously had a salary of £60,000 per year as an employee you would divide this by 1,200 hours (40 hours x 30 weeks, minus annual leave) to give you £50/hour as your equivalent employee hourly rate.
- Multiply this by 1.5–2x as a contractor to cover all the tax you will have to pay for yourself as a contractor and for downtime periods and to make up for the lack of holiday pay, sick pay, pension, and other employment benefits. This will give you £75–£100/hour or £600–£800/day.
- If you are working under an inside IR35 contract which means you are subject to PAYE tax (same as employees), then you will need a much higher rate (say £650/day), and you could set a lower rate (say £550/day) for outside IR35 engagements.
- Add on for costs and expenses, e.g. for insurance (say £30/month), software (say £20/month) and travel (say £100/month).
For example, if as an IT contractor you want to net an income (tax-free pay) of £80,000/year, and you charge the average above, then you need to gross £120,000 a year (48 working weeks x 5 working days per week) to take into account an approximate 30% tax liability, and downtime for 8 weeks.
Average contractor day rates by sector
While your day rate will come down to your experience and sector, as a ballpark average across the UK we currently see the following averages being quoted in various industries:
Industry | Day Rate
- IT/Technology: £400–£800, e.g. developer, project manager
- Finance: £350–£700, e.g. accountant, analyst
- Engineering: £300–£600, e.g. mechanical, civil engineer
These rates have risen from 2023 to 2024 by around 20–30% on average so make sure you keep up to date by checking sites like CWJobs, or simply ask agencies for rates for similar contractors in your sector.
Negotiating rates
- Start high: always quote 10–20% higher than your minimum acceptable rate so you have room to haggle with clients.
- Don’t undersell yourself: focus on your value, expertise, and the deliverables/results you provide for your clients and don’t get dragged into price discussions based purely on hours.
- Use agencies: agencies will take 10–20% commission but also negotiate with the client for you.
How an accountant can help
We, as contractor-specialist accountants, can help you come up with your ideal day rate based on your desired take-home income, your IR35 status, and your additional expenses. We then use FreeAgent to keep track of your earnings and tax liabilities to help make sure you’re charging a rate which covers all your targets.
So, don’t get undercut or overcharge your services by booking a free no-obligation consultation with our team to work out what rate you need to charge to be competitive in 2025.
