Pricing your work: the rate maths nobody teaches

Most freelance rates are set by one of two broken methods: copying what somebody in a Facebook group says they charge, or dividing an old salary by 260 working days. Both produce the same outcome — more hours for less money — and both feel reasonable at the time, which is why they persist.

The real calculation takes about five minutes. What follows is that calculation, built up from the actual costs an employer used to carry on your behalf, checked against the tax you will pay on the result, and finished with the two thresholds that should shape your pricing well before you reach them.

The formula, and where each number comes from

(Target salary × 1.3) ÷ 180 = minimum day rate.

Both of those numbers get treated as rules of thumb. They are not. Here is what each one is standing in for.

Why 180 days, not 260

A calendar year contains roughly 260 weekdays. An employee does not work all of them, and neither will you.

• Statutory holiday alone is 5.6 weeks — at least 28 days for someone working a five-day week, capped at 28. That is 232 weekdays before anything else.
• Bank holidays are usually counted inside that 28 in an employment contract, but the days themselves are still days most clients are not working.
• Then the unpaid work of being self-employed: proposals, invoicing, chasing invoices, bookkeeping, marketing, your own website, professional development, and the gaps between one project ending and the next starting.
• Then illness. An employee gets sick pay. You get nothing from anyone, and Statutory Sick Pay is not available to the self-employed at all.

180 billable days is a good freelance year. Plenty of people run at 150. Dividing by 260 assumes you will bill every single weekday, which nobody does.

Why 1.3, built from what an employer actually pays

The multiplier is not a fudge factor. It is the employment costs that used to sit outside your payslip, and every component is a published figure:

• Employer National Insurance at 15% on earnings above the secondary threshold of £5,000 a year, for the 2026/27 tax year. On a £45,000 salary that is roughly £6,000 the employer paid that you never saw.
• Employer pension contributions, a minimum of 3% of qualifying earnings under automatic enrolment. Qualifying earnings run from £6,240 to £50,270, so on £45,000 that is about £1,163 a year.
• Paid holiday. 28 days of salary for which no work is done.
• Everything the office provided: laptop, phone, software licences, desk, heating, training budget, professional subscriptions, and insurance.

Add employer NIC and pension alone and you are already 16% above the headline salary before a single laptop is bought. 1.3 is a floor, not a generous allowance.

Want the equivalent of a £45,000 salary? £45,000 × 1.3 ÷ 180 = £325 a day. Charging £250 because it sounds like a lot next to your old monthly payslip is a 23% pay cut wearing a freedom costume.

Worked example: what £325 a day actually leaves you

Rates only mean something after tax, and self-employed tax works differently enough from PAYE that the comparison is worth doing properly. All figures below use 2026/27 rates for England, Wales and Northern Ireland.

Now the employed comparison, on the £45,000 salary the rate was built to replace:

So £325 a day leaves you roughly £3,186 ahead in cash — and that £3,186 is what you are being paid to carry the holiday, the sick days, the pension you now have to fund yourself, and the risk of a quiet quarter. It is not a windfall. It is barely a fair swap, which is exactly the point: 1.3 and 180 are a floor. If you are billing under £325 a day and telling yourself you have replaced a £45,000 salary, the arithmetic disagrees.

You can run the same calculation on your own numbers with our sole trader tax calculator.

Then adjust for what the formula cannot see

• Value pricing beats time pricing where the stakes are visible. A rebrand that repositions a business with £2m of turnover is not worth four weeks of day rate. Anchor to the client's outcome when their upside is large and legible, and to time only when it is neither.
• Project prices beat day rates for defined scope. On a day rate, getting faster at your job cuts your income. On a project price, you keep the efficiency gain. Day rates quietly punish experience.
• Retainers should carry a premium, not a discount. The client is buying certainty of access. Discounting for volume makes sense when volume reduces your cost to serve, and a retainer usually does not.
• Price the client, not just the work. Slow payers, scope creepers and committee approvals all consume unbilled days. Those days come out of your 180.

The two thresholds that should shape your pricing

Two numbers in the tax system create step changes in your admin and your margin. Both are worth planning around before you hit them, rather than discovering after.

1. VAT registration at £90,000

You must register for VAT if your taxable turnover over the last 12 months exceeds £90,000, or if you expect it to exceed £90,000 in the next 30 days alone. The backward-looking test has a real deadline attached: you have 30 days from the end of the month you went over, and your effective date of registration is the first day of the second month after you crossed. The forward-looking test is faster — you must register by the end of that 30-day period, and registration is effective from the date you realised, not the date turnover actually crossed.

For business-to-business clients who reclaim VAT, registration is close to invisible. For consumer-facing freelancers it is a 20% cliff you either absorb or pass on. At £325 a day and 180 days you are at £58,500, comfortably clear. At £500 a day the same 180 days is £90,000 — exactly on the line. Raising rates before you register softens the jump considerably. Our guide to VAT registration for the self-employed covers the flat rate scheme and the timing decisions.

2. Making Tax Digital, which bites on turnover not profit

This is the one that catches people out. Making Tax Digital for Income Tax applies to sole traders and landlords from 6 April 2026 where qualifying income exceeds £50,000, from 6 April 2027 above £30,000, and from 6 April 2028 above £20,000. Each phase is assessed on the Self Assessment return you filed for the tax year two years earlier — so the April 2026 start was set by your 2024/25 return.

The trap is the definition. Qualifying income is gross income before expenses — turnover, not profit — and it combines self-employment and property income. The freelancer in the worked example above has £50,000 of profit but £58,500 of turnover, which puts them over the £50,000 line despite a profit exactly on it. Employment income, dividends and partnership profit shares do not count towards it.

Practically, that means quarterly updates to HMRC and compatible software rather than one annual return. Our guide to MTD for the self-employed sets out what actually changes.

Raising prices without drama

1. New enquiries first. Quote the new rate to everyone who contacts you from today. No announcement, no negotiation with anyone existing. This is the zero-risk lane and most people never use it.
2. Existing clients, with notice. One short email, four to six weeks ahead, the new rate stated plainly, no apology paragraph. "From 1 September my day rate is £375" outperforms three paragraphs of justification, because justification invites negotiation.
3. Expect very little attrition. Clients price switching costs too — briefing somebody new, the risk that they are worse, the time it takes. The rare client who leaves over a fair increase was usually your lowest-margin work, and that capacity refills at the new rate.
4. Do it every year. Small annual increases are unremarkable. A panicked 40% correction after three static years is a conversation. Three static years through an inflationary stretch is a real-terms pay cut you chose.
5. Raise the floor, not just the ceiling. The fastest margin gain for most freelancers is not charging new clients more; it is ending the one legacy engagement priced in 2021.

The number to watch afterwards

Not revenue. Revenue rewards working more, which is the trap you were trying to escape. Watch profit per billable day: taxable profit divided by the days you actually billed. It falls when you take on cheap work, it falls when a client eats unbilled hours, and it rises the moment you price properly — none of which shows up in a turnover figure.

FreeAgent, included in every package, shows income, costs and the live tax position, so the number is there whenever you want it. What we add is the second opinion on whether the rate is still too low. It usually is. If you want that conversation, get started here.