Calculating Freelancer Income in the UK

Is it better to work at 100% capacity for a low rate or half the time for double the rate? In fact, what does end up in your pocket after all is said and done?

It’s easy to focus on the Gross Revenue when we should look at the Net Profit. You might know the expression “Profit is Sanity, Revenue is Vanity” — let’s do the numbers to back this up.

In this article, we will look at how much you take home at the end of the day and how best to structure your rates and time.

We’ll look at whether you should focus on large but irregular work, or whether to have lower cost but consistent work. We’ll also look at how best to slice up your earnings.

Your money earned as a freelancer then has to be sieved through various tax instruments before you get it.

We’ll look at how you can arrange your freelancer revenue to be tax efficient. We’ll look at some of the rules for UK companies and how you can use our spreadsheet to get a clear understanding of what goes where.

We’ll show our workings so you can understand where your money goes. As with most money-related matters, a professional accountant is an invaluable resource – so use and check this with them.

The aim is to help you put aside the right amount of money so you don’t get hit with unexpected tax. From there, you can set targets and work less for more.

Let’s convert your daily rate into an annual net income.


Want to jump ahead? Click here to view the Google Spreadsheet.

Your monthly capacity

What are we working with? There are 260 weekdays in a year. In England, there are 8 Bank Holidays which are included in your 28 days minimum holiday. In total that leaves us with an annual work capacity of 232 working days which equates to 19.3 billable days per month.

Depending on your business, you will likely require a few days per month for general housekeeping. It is unlikely that you will need to hit full capacity of 19.3 days. In fact, you may be freelancing precisely because you don’t want to work every possible day of the month.

Let’s take a generous example of working at 75% capacity. This would result in you having 174 working days per year or 14.5 billable days per month. That will be our target for the days you get paid per month in this example.

N.B: This allows you to take just under 4 weeks of holiday a year, which is nice.

Working out your Day Rate

What you charge per day depends on what the market will pay for your services and how much you need to make. Let’s use the 14 days per month as a basis for how many days we need to work. From this, we can plot how different rates bring home different annual salaries.

Once this is done we need to understand how your revenue is whittled down by your outgoings to become your net income.

First, let’s clarify some of the language used so we are on the same page.

Gross: The figure before outgoings such as tax

Net: The final figure after all outgoings

You have a Revenue then a Profit and then finally an Income. We will run through the process from Revenue to Net Income. Net income is the final amount you take home.

When we have this calculation we can make a more informed decision on your day rate. The aim is to choose a day rate that works for the market and for you.

At this point, you are welcome to load up the spreadsheet and view the different Gross Day Rates and Net Day Rates. Below is a summary of how they compare.

It’s clear there is a fair difference. We will examine how your Gross Revenue converts to Net Income, but first a quick word about your outgoings…


You have to spend money to make money as any hustler in a Hollywood screenplay will spout. As with everything financial, the more you can quantify and categorise, the better insight you will have. Make a note of what you are spending and where. If you use an accountancy tool like FreeAgent or Xero, then you are in luck as they do a lot of the heavy lifting for you with an itemised breakdown of outgoing/month.

Certain outgoings are tax-deductible and others are not. You’ll need to investigate that yourself, depending on your specific outgoings.

I will give a very simplistic (and totally unrealistic) example to demonstrate how a tax deductible expense works.

Example: If I have a Net Income of £500 and £100 of tax-deductible expenses, then I only have to pay tax on £400.

N.B: I have included an example table in the spreadsheet where tax-deductible outgoings can be added.

What’s getting taxed?

There are a few taxes to consider:

  • Income Tax (personal tax to be paid via self-assessment)
  • Corporation Tax (tax to be paid as a limited company)
  • National Insurance Contributions (personal tax to be paid via self-assessment but dependent on salary you recieve via the company)

If you have a limited company, as a director, your income includes both your salary and dividends.

There is a tax rate for your salary and a tax rate for your dividends. The total of your income (salary + dividends) determines the tax band you belong to.

Income Tax Band Taxable income Tax rate Dividend Rates
Personal Allowance Up to £11,500 0%
Basic rate £11,501 to £45,000 20% 7.50%
Higher rate £45,001 to £150,000 40% 32.50%
Additional rate over £150,000 45% 38.10%


The important thing to remember with the bands is that you are only taxed on the amount going over the threshold. So if you have a total income of £46,000 which is £1000 into the higher rate band then you only pay the 40% rate on that £1000 over and not on the entire amount.

  • No income tax (remember that’s sum of your salary and dividends combined) on the first £11,500
  • You’re taxed 20% over an income of £11,500 and up to an income of £45,000
  • You are taxed 40% on any income over £45,000

But it is not that simple. We need to factor in our dividend allowance and our national insurance contributions. With this in mind we can structure how much we take as salary and how much as dividends.

Dividend Allowance

You don’t pay tax on the first £5,000 of dividends in the tax year (from 6 April to 5 April the following year.)

National Insurance Contributions and Salary

You will need 35 years of contributions to get the full amount of your state pension, so this is worth paying and we’ll include this in our calculations.

To qualify you need to have a salary above the lower earnings limit (LEL) which is currently £490/mth or £5,880/year. As long as you are above that, you get full credit no matter how much more you pay.

National insurance is a tax of 12% and kicks in at the primary threshold which is £680/month or £8,160/year. Therefore this is the typical salary recommended by most accountants for owners of companies. At this salary, you will pay no national insurance contributions but be eligible for the state pension (after 35 years).

This is why we have set the salary per person at £8,160 in the spreadsheet.

Hat Tip to Brighton based accountant Simon Peters for clarifying this and a link to a bit more on the subject:

Optimal Director’s salary for 17/18

Summary so far

Let’s just reaffirm a few things at this point…

Dividends are taken from the Net Profit of the business and not the Gross Profit.

Gross profit = revenue – outgoings 

Revenue: We’re looking at a range of day rates multiplied by the number of days per month. For instance 14 days at £300 = £4200 per month revenue

Outgoings: Includes salary and overheads. We’ve set our salary (with consideration to our NIC quota) and we’ve also listed our overheads (expenses). From this, we can then determine our Net Profit.

Net profit = Gross profit – corporation tax

Next, we need to consider corporation tax before we can start taking dividends.


Corporation Tax for Limited Companies

If you are operating as a limited company, you need to consider corporation tax. If you are a sole-trader your personal assessment determines your tax contributions and you are not required to pay corporation tax. For 2017-2018 Corporation Tax is set at 19%.

Corporation tax is applied on your gross profit. To determine Gross profit work out your outgoings (outgoings = salary + overheads/expenses) and then minus that from your revenue (revenue = total sales before tax.)


Taking Dividends

When we have our net profit we can then draw the dividends from this. You don’t pay tax on the first £5000 of dividends, but after that, the basic rate is 7.5% up to £43,000 of income.

The tax band for income tax is higher than dividend tax, so this is more efficient way to structure your payments. That’s the reason why we have kept the salary at £8,160. That’s enough to qualify for NIC without taxing that income. We are then taking dividends which are taxed at this lower rate of 7.5%.

Have a look on the spreadsheet near the bottom of the Advanced sheet where there is a tax breakdown of this information.

Multiple Shareholders and Dividends

Many freelancers work in partnership with someone else. Often this is their partner. A usual setup is to have a Ltd. company with two directors as shareholders.

If you are working with another director then you will need to adjust the days accordingly. You will also need to bear this in mind in your calculations of salary and dividends.

We’ve included a field in the spreadsheet. Change this field to 2 or 1 depending on how many directors there are.

The spreadsheet does assume the shares of the two directors are equally split. Dividends are split according to share amount, and you will need to take this into consideration.

Using a spreadsheet to calculate your net income

So far we have looked at:

  1. The days we can bill for
  2. How that totals to our Gross Income
  3. The ways to structure your outgoings, salary and dividends so that you are fulfilling national insurance contributions and reducing your tax bill.

All the above information has been compiled into a Google Spreadsheet that you can use as a template.

Use the following data fields to check how much you take home:

  • Day Rate
  • Days per month worked
  • Number of Shareholders

If you look at the Advanced table it shows everything. The summary table just shows main fields from Advanced.


In summary

  • IF you worked 14 days at £400 per day
  • THEN your Gross Revenue is £67,000 per year
  • AND your Net Income is £48,206 per year to be shared among the shareholders.


Take a look at the raw numbers in the Spreadsheet by clicking here


Working fewer days with a higher rate

It’s interesting to compare working fewer days per month at a higher rate. At the start of the example I proposed the question:

“Is it better to work at 100% capacity for a low rate or half the time for double the rate?”

First a word about fixed overheads. In the digital world, which is where I reside, overheads are relatively fixed. For digital freelancers, it makes little impact on their overheads whether they charge £300 or £1000 a day. This is an assumption I have included in the spreadsheet. This may not be true for everyone. You are welcome to dig deeper and copy the spreadsheet so it better reflects your own figures.

This may not be true for everyone. You are welcome to dig deeper and copy the spreadsheet so it better reflects your own figures.

It does, however, show us that there are greater margins on all revenue above this baseline.

If you work 9 days a month (48% capacity) at £300 a day you earn £17,586 income per year.

You might think that if you work twice at much, if you work 18 days a month for the same day rate, then your income is just doubled.

You might think the income should be £35,172 (£17,586 * 2) but actually, it is £41,862. This is because of the greater margins above the baseline of your outgoings. There is a multiplier effect on all work over this baseline.

Put simply, you are getting much more in income the more you work over your baseline.


There is, however, no financial difference in pay between working 9 days at £600 per day or 18 days at £300 a day. The graph above shows this.

There are many secondary benefits of a higher day rate. The most important being that you can reach a steady level of income and know that some months you will have an opportunity to increase your capacity and take advantage of the multiplier effect and increase your net profit for that month.

Having more time not working for clients also means you can spend more time marketing and work on your business. The kind of work you need to do to attract higher paying clients.

Ultimately, it is somewhat academic to propose that you are going to double your rates to £600 if there is not a market to sell your services at that price. Use these kinds of spreadsheets as a guide. Use it to set a target for the number of days you need to work.

I’d love to hear your side on this. How do you determine your day rate? Do you have targets? Do you prefer consistent lower paid work or irregular high paid work? What are the other considerations to bear in mind? Higher paid work can involve more risk, it can require more stress.

However, in some instances, it can be counter-intuitive. The lower paid work can be harder because your services can be valued less. These kinds of considerations are very client specific.

It would be great to hear from a variety of different disciplines about their experiences. If you have a moment, scroll down to the comments and leave us a note.



Extra Note: Consider tax as a monthly outgoing

This is included in the spreadsheet and I recommend considering this. You don’t have to pay tax every month, but it is smart to put aside cash every month so that when the tax bill arrives you can pay it off. It’s common for businesses to put off saving for their tax bill and then they get stung.

It’s easy to avoid this by calculating your tax and then putting the correct amount aside every month.

Extra Note: VAT Registration

The VAT threshold is based on revenues over £85,000

Once over this threshold, you are required to charge 20% VAT tax. This is tax deductible.

I asked 100 Freelancers how they manage their time

Earlier in the year I talked at WordCamp Bristol about building products. I talked about some of the basic mistakes we all make in our businesses.

One of the key things we often do as people is to talk too much and not listen. A good product needs a good listener. There’s no point building a product if only you will use it.

For the last few months I have been using a tool I built to manage my time as a freelancer. I thought other freelancers would like it use it too, but I wanted to check if other freelancers worked the same as me.

It turns out they don’t.

I ran a survey among freelancers and got a fantastic response. I’m going to go through the questions, responses and what we can learn from the results. This is really interesting for me as a freelancer and as a product builder. I’m sure you will find it interesting too.

So, we had just under 100 responses (as of 23rd June). I will update this if more responses are received. Have a look at the questions below and my conclusions from each question. There are 6 questions in total.

What do you think? Do you think I missed an important insight? Let me know in the comments and if you want to fill in the questionnaire, then you can do so here.


Question 1 – How do you track your time? ⏰

Before I built I tracked my time in a text document. I knew others used a pad of paper or spreadsheet. I found the other time tracking tools too reliant on very specific micro-tracking. The type of tracking that lets you press start and stop and tracks each second. I knew a lot of people used this too.

This first questions aimed to get an insight into how people were managing time (and if they even did!).




I have 3 groups I think are very similar that make a big part of the pie: Manual, Paper and Spreadsheet. The manual group contained a variety of methods like writing down the days worked no a text file. All in the same spirit as on paper or spreadsheet. They make up 23%.

Then there are the “don’t knows!” Which I think translates into (I don’t really!). A whopping 17.5%.

There are a few apps and services and in particular FreeAgent, Toggl and Harvest do well at 10% each.

There are more apps and methods in the Other (23%) which I have included in a list below.

The main thing that interests me in this list is that 40% are using quite simple or no systems at all to schedule their time effectively.

Considering a freelancer is selling their time I can conclude two things:

  1. Freelancers are missing an opportunity by not being smarter with their time tracking.
  2. The existing tools are not meeting the needs of a big segment of freelancers


Here are a selection of the other items mentioned

  • Apple Calendar
  • Billing a Mac App by Market Circle
  • Billings Pro
  • Crunch and sometimes client tools
  • FreshBooks
  • Harvest,
  • I charge by the project, not time or wordcount so I don’t need to account for hours/minutes worked (I’m a writer) But I do keep a note of my time in a diary/notebook
  • I don’t, I use a customised online timesheet/budget tracker for one agency I work with.
  • iCal
  • IFTTT applet on phone which triggers spreadsheet entry but can’t be project specific :/ suppose I could build new applet for each project but bleurgh
  • In house database app
  • OfficeTime
  • Redmine, when I remember
  • Simple Time Track – Chrome extenstion
  • Timekeeper
  • Timely
  • Trello
  • Trello non-critical JIRA for critical (I have a free JIRA for open source work)
  • ZEI


Q2: How flexible are you on your booked work days? 🤞

I asked this question to determine how important time tracking actually is for some freelancers. I know from experience that some people work very loosly. Others are very precise. I work the precise day I say to a client. If I say I’m working on the 6th, 7th and 8th then I’m working then.

That can create a problem with some clients and doesn’t always work with the working style of freelancers. I didn’t want to assume everyone worked like me so I had these answers to choose from:


  • I loosely specify the time period I work.
  • I don’t specify when I do the work.
  • I have project deadlines, but not fixed work times.
  • I specify when I will do the work, but in reality I do it whenever I can.
  • I specify the precise days I will work for a client and work them.
  • I work to deadlines. As long as I meet the deadline, my clients don’t need to know what time period I work. If they ask, I give them a loose idea of days, but not hours.
  • We agree on a deadline, and as long as I meet that, it isn’t important to my clients WHEN I am working
  • I usually communicate by email (sometimes in person), generally I do say when I am working on something and when I’m available to work on things.




The main take-away here are these two items:

39% I loosely specify the time period

35% I don’t specify when I do the work


So, 74% are not being precise with their time management. That can mean three things:

a) They don’t feel they need to

b) They don’t know the benefits they can get from better time management

c) They don’t have the tools or processes to help them manage their time.


I think that time management is a big win and easy way for freelancers to improve their business. I also think the tools are not quite there and that the processes are something that takes time to learn.

I may be indulging myself in a bit of confirmation bias, but these results bolstered by original assumptions about a tool like being useful for the freelance community.


Q3. What’s the smallest amount of time you bill for? 🤑

There is so much conflicting opinion about this question.

I know there are so-called thought leaders and freelance advisors who are big advocates for value-based pricing. That’s when you price for a project in it’s entirety. I’ve found that this puts the risk all onto the freelancer and can back-fire. Anyone who’s experienced scope-creep knows this.

So I charge in increments by half day. I wanted to know if I was alone. I certainly knew from other freelancers that they all had their own unique ways.



I was really surprised by the diversity of pricing methods freelancers have.


By day or half day is 35%

By hour is 26%

The remaining 39% are an assortment of everything from per minute to per £50min charge. We even had someone charge in 6-minute blocks. I asked about that one and learnt it’s because it’s divisible easily by 10 blocks in the 60 minute hour. That freelancer must surely be a developer!

What can we learn? Well, I realised that most don’t charge in blocks of half a day like I did. I did originally build to work only in blocks of 1 day or half a day. I changed it to work in hours. In the future, I will change it to work with custom time units (minutes!).

I think that many freelancers undersell them services my counting per minute and such like. Often times this means you work on bitty projects and it ignores the accumulated time associated with starting a project. All the admin and correspondence that is required to start and complete projects.


Q4. Do you feel like you have good control over your time? 😬

I found that I was struggling with my paper and pen message. I also know other freelancers who love using paper and don’t want to change it for the world. Was I solving a problem that didn’t really exist (except for me!).

This question helped me see if others thought their time management could be improved.



A majority of 62% say they want to improve their time management. There are about 10% who also find their time management needs much more improvement with 7.8% choosing my gloriously named “I put the Hap in haphazard” (many thanks to [Paul Silver[( for that!).

Then there was a sizeable 23.4% who are fine with their time management.

Overall, this confirms my assumption that this is an area for improvement and something freelancers need help with.


Q5. Do you feel you’re productive in your work time? 😎

A very subjective question this one. Everyone who works behind a computer knows the lure of messing about on the internet. When we have work to do it’s easy to play about and distract ourselves. Procrastination is real!

How do freelancers, often computer-based in their work, find this dilemma I wondered?

I know that since implementing a new scheduling system based on my own procrastination has decreased. When I had a looser time schedule I tricked myself into putting work off. Often this caused a lot of stress when deadlines suddenly approached!

I wondered how other freelancers were faring. Ultimately if everyone was fine then there wasn’t really a problem and my product would not be of much use, so I was very curious to find the results of this question.





39% “Happy (lot’s done)” – Yay! These freelancers are doing it right!

13% said “Even if I don’t have much on it stretches to fill all my time”, which for me represented a failure of time management. This was a classic symptom of being sucked into the computer or office work. Room for improvement here.

31% said “I get stuff done, but procrastinate too much and work in the evenings a lot ” – This was something I expected and have experienced with myself and other freelancers. It’s a classic symptom of inefficient time management and procrastination. Also, because we are less productive when we are at the end of the day the evenings can sometimes drag on without much work being done. Definitely space for improvement here.

The remaining items were procrastination items of various levels. So room for improvement there. I even received this response which I thing was likely the case for most people and very honest

“It honestly varies from day to day. Some days I’m totally focused and highly productive. Other days I’m being scrambled for emergency support work here and there and all the context switching makes me horribly unproductive.”


Q6. Which accounting / invoicing tool do you use? 💰

First off, when I first described what I was building I got a lot of rolled eyes.

Didn’t I know that thousands of time tracking tools already exists! Isn’t this the classic product a developer always makes!

Well, I think the first thing to say is and a really important lesson from the questionnaire is that most people are thinking about time tracking when we are talking about time management. They are thinking about the real-time click-clock start-stop recording of what they are working on.

I’m not talking about that with

I’m talking about scheduling and organising the days worked so you can be productive and transparent with clients. I’ll need to be clear about this difference in my communication.

This question was aimed to see if and what tools were being used. Turns out there are all sorts of tools out there!



Lots of tools are being used. Here are my main takeaways.

The majority of the tools used are the existing accountancy packages like FreeAgent (23.6%), Xero (16.7%) and even Brighton’s own Crunch (5.6%). That’s over 45% just those three and there were more in the smaller segments. I’ve tried these accountancy tools and find their use too broad.

I think there is an opportunity to for to offer a leaner solution that can work along these options and not as a competitor. Perhaps even integration with these accountancy solutions is required further down the road. That would make scheduling fit directly into an invoicing tool.

I also noticed that 22% chose DIY (Do it Yourself). This means they are writing invoices and tracking everything without any tools. This is how I was managing my time prior to and this will be a large focus of who markets to.


Final Thoughts

This has been a really useful exercise for me to step into the shoes of other freelancers. There are other questions I would have liked to have asked in hindsight and there are ways I would have phrased what is about. I’m grateful however that I have this insight from the questionnaire. In particular to distinguish from the time tracking tools that are already out there and present it as a calendar and scheduling tool.

My main surprise from the questionnaire was the range of units that other freelancers quantify their time in. I think many freelancers would benefit from relooking this.

What do you think from the result and from my analysis? I’m really curious and think it’s important for freelancers to review these questions as a group so we can all improve.