Day rate calculator UK.

How to work out your day rate

There isn’t one right answer, but there’s a way to reach one you can stand behind.

Start with what you need to earn in a year — before tax. Then add the running costs a customer never sees: professional insurance, an accountant, software subscriptions, phone, kit you’ll replace.

Work out how many days a year you actually bill for. It’s less than the calendar suggests. A worked example:

• 260 weekdays in a typical year (52 × 5)
• minus ~8 bank holidays
• minus ~20 days of holiday you want to take
• minus ~10 days for illness or unbilled admin
• = ~220 billable days

That’s an example, not a rule — after a year of tracking, use your own number.

Divide (income needed + running costs) by billable days. That’s your day rate. If you want a cushion for quiet months or heavy admin stretches, add a few pounds a day on top — but call it a buffer, not “margin”. As a sole trader, your earnings are the profit; there’s no separate line item to mark up.

Two common mistakes:

• Dividing by 365. You don’t bill on Sundays, bank holidays, or the day you spend catching up on paperwork.
• Forgetting costs. A £280 day rate looks fine on paper until you subtract £70 of daily running costs — you’re really at £210 gross. Income tax and National Insurance come out of that.

Working out a day rate from an annual salary

Leaving a PAYE job for self-employment? A £40,000 salary doesn’t translate to £40,000 ÷ 220 = £182 a day.

As an employee, your employer covered things that are now yours to pay for:

• Pension contributions — at least 3% under auto-enrolment, sometimes more
• Paid holiday — typically 28 days including bank holidays, still on full pay
• Statutory sick pay — some paid days off when you can’t work
• Employer’s National Insurance — 15% on most of your salary, invisible to you but real to them
• Equipment and workspace — laptop, phone, desk, sometimes travel and lunch

Add these up as running costs alongside your target income, then work through the calculation in the section above. This calculator lets you enter a rate and daily hours — use its annual figure as a sanity check against the income you actually need.

A rough rule some people use is to multiply an old PAYE salary by 1.4 to 1.6 before dividing by billable days. It’s a shortcut, not gospel — the honest answer comes from listing what your employer used to cover and what you now pay yourself.

How VAT changes your day rate calculation

Once you cross the VAT threshold (currently £90,000 of taxable turnover in a rolling 12 months), your day rate has to deal with 20% VAT — and which scheme you’re on changes the maths materially. On standard accounting you add 20% on top of your rate, claim back VAT on materials and overheads, and pay HMRC the difference quarterly. On the Flat Rate Scheme you still charge the customer 20% but hand HMRC a fixed percentage of your gross (9.5% for general builders, varies by trade) without reclaiming input VAT — which sometimes pays better, sometimes worse depending on how much you spend on materials. The decision matters most when you’re invoicing other VAT-registered businesses (who reclaim your VAT in full) versus end consumers (who absorb it as a real cost).