Freelance Rate Calculator UK: What Day Rate You Need Outside IR35 in 2026

£460 a day, assuming 200 billable days a year and typical limited company overheads (£2,900: accountancy, professional indemnity insurance, software, and equipment). That generates £92,000 in contract revenue, 1.53 times your £60,000 target, once Employer NI, Corporation Tax, and Dividend Tax have all taken their share. The gap between the two numbers is not padding. It is the real cost of running your own company instead of drawing a payslip.

Three things eat into your day rate before it ever reaches your bank account. First, your limited company pays Employer NI on your salary and Corporation Tax on its profit, taxes an employee never sees directly because their employer absorbs them. Second, dividends are taxed again once they reach you personally, at 10.75% to 39.35% depending on your income band. Third, you fund your own non-billable time: public holidays, annual leave, sick days, and the gaps between contracts, none of which a permanent salary loses a single day to. Stack all three and a £60,000 take-home target needs £92,000 in revenue, not £60,000.

Start with a 260-day working year (52 weeks x 5 days) and take off 8 UK bank holidays, a realistic 25 days of annual leave, and a 5-day sick or buffer allowance. That leaves 222 days. Then apply a bench percentage for downtime between contracts. A 10% bench allowance, reasonable for an established contractor with a steady pipeline, brings you to 200 billable days. Skipping the bench allowance and using the full 222 days is the single most common way contractors underprice themselves.

£12,570, exactly matching the personal allowance. At this level you pay zero Income Tax and zero employee National Insurance on your salary, because the NI primary threshold sits at the same figure. Your company still pays Employer NI (15% above the £5,000 secondary threshold, roughly £1,136 a year), and the rest of your income is extracted as dividends, which is why the calculator defaults to this salary before working out your required day rate.

Dividing £60,000 by 220 working days gives £273 a day, the figure most first-time contractors quote when they move from permanent to contract work. That naive calculation ignores Corporation Tax, Employer NI, Dividend Tax, business overheads, and the fact that 220 calendar working days is not the same as 200 realistic billable days. The correct answer for the same £60,000 target, once every one of those is accounted for, is £460 a day, 68% higher than the naive figure.

A realistic annual budget for a solo limited company contractor runs to around £2,900: £1,500 for accountancy and annual company accounts, £600 for professional indemnity and public liability insurance, £400 for software subscriptions, and £400 for equipment. These are deducted from company profit before Corporation Tax, so a pound of overhead reduces your day rate requirement by less than a pound, but it is still real money that has to be earned before you see any of it personally.

Only after converting both to the same basis. The 'permanent equivalent salary' figure shows what a PAYE gross salary would need to be to hand you the same net take-home as your contract target: for a £60,000 net target, that is roughly £85,300 gross as an employee. If a permanent offer's gross salary is close to or above that figure once you account for pension matching and other benefits, it is a genuinely comparable option, not automatically the worse choice just because contracting nominally 'pays more per day.'

More than most contractors expect. At a £60,000 net target with standard overheads, moving from 0% bench (222 billable days) to 20% bench (178 billable days) pushes the required day rate from £414 to £517, a 25% jump for exactly the same take-home target. Bench time is consistently the single biggest lever in the whole calculation, larger than the tax structure or the overheads you choose, because every lost billable day has to be recovered from the days that remain.

This specific breakdown assumes you are working outside IR35 through your own limited company, extracting income as salary plus dividends. If a contract is inside IR35, the client deducts Employer NI and applies PAYE tax and Employee NI to a deemed salary before you receive anything, which is materially less tax-efficient and requires a different day rate to hit the same net target. The calculator supports both structures: switch to the inside IR35 (umbrella) option to see the equivalent figure for a deemed-employee contract.