One of the questions we’re most frequently asked by contractors is: “What should I be charging?” And whilst there’s no one-size-fits-all answer, setting the right rate is much more involved than simply picking a number out of thin air. It takes a combination of research, planning, and understanding how your choice of payment structure (inside vs outside IR35, for example) and your approach to downtime can all impact on your take-home pay.
Do Your Market Research
As a first step, look at job boards and speak to recruiters and other contacts in your sector. Fees for contractors can vary wildly based on industry, skill level, and demand, so this research will help you at least to avoid underselling yourself!
Budget for Downtime
It’s important to plan for downtime when you’re a contractor. If you go on holiday or fall ill, you won’t get paid as you would with a permanent job, and not all contracts include notice periods. A good rule of thumb is to budget for **44 working weeks per year**, giving you some wriggle room for both contract gaps and personal time off.
Factor in IR35
Whether a contract is **inside or outside IR35** is hugely significant when it comes to your take-home pay. Inside IR35 contracts require an uplift of around **20%** in order for you to receive the same net income as if you were working outside IR35, because of the higher tax and NI cost to the contractor.
Understand Payment Structures
Ensure you understand the difference between an **assignment rate** (which may include payment for employment costs such as employer NI or an umbrella company’s admin fees) and the **contract rate** (the amount you actually take home after all deductions). This is standard industry terminology, but as the saying goes, knowing the jargon can save you from being sold a pup.
Get Professional Advice
At the end of the day, working out the right rate for you involves more than just positioning yourself in the marketplace. It’s also about choosing the most tax efficient structure for your role and financial plans. An accountant can easily do a comparison of your take-home pay as a contractor on an inside IR35 contract vs permanent employment outside IR35, and give you guidance on how best to structure your work in the most tax efficient way.
Our View
There’s no single correct rate, and the “right” figure balances the need to be both competitive and to be sufficiently profitable to continue contracting. A rate that is too low can diminish your perceived value and one that is too high will price you out of the market. Review your rate on a regular basis to ensure it remains in the right place and plan for IR35 where possible.
📞 Need some help with what you should be charging, or would like to see what your day rate equates to in take-home pay? Get in touch with the team at Bright Ideas Accountancy we specialise in working with contractors and freelancers to help you maximise your earnings with confidence.
