How much to charge as a day rate? Becoming self employed

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I used to work full time but left two years ago to look after my SEN child. My work have asked me to go back as a contractor, so I have some flexibility about when & how much I work. I've never been self employed, so I now need to figure out all the logistics. I plan to set up a sole trader and now I need to tell them how much my day rate will be (or rather, my hourly rate as I only plan to work 5-6 hours a day).

From googling I found a calculator which suggested I take my full time salary, add 30%, and divide by 220. This gives me a day rate of £325. Assuming a 7.5 hour day that gives £43 per hour.

I appreciate I'll need to keep back some money to pay for tax, do a self assessment each year, probably set up a separate bank account to track income & expenses and that I won't be getting any benefits like holiday pay, sick pay, pension etc. I don't actually expect to incur any expenses as I'll be working from home, just talking to clients and working on documents (although I know you can claim some electricity, internet etc as expenses when doing taxes).

Are there any other suggestions for how to calculate a day rate? Anything else I haven't thought of in terms of costs or extra considerations I should build in?

Really, why would that be the case? This is important as I definitely don't plan to have any other clients

This is why you need to do your research carefully!

Research IR35

https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

I do some consulting work, if I apply your 220 day principle above (to my full time employed salary), I actually charge 200% of my daily employed rate for my private work.

You need to be able to demonstrate that you don't meet the definition of an employee, so you are free to take on work from more than one firm, control the manner in which you work, choose your own hours, use your own tech/equipment, etc., etc..

You can always negotiate! So go in much higher than you think and see what they say.

I would recommend being self employed initially, rather than setting yourself up as a limited company unless your client is demanding it. There are a lot rules around limited companies, and costs, and the tax benefits are less now for someone who is essentially a one woman operation. For example, it costs me over £1k to get my very simple accounts done each year. If I was self employed I could just do my own self assessment for free (which I also have to do anyway).

On the day rate - don't undersell yourself. It is a fine balance - you don't want to overprice yourself and not get work because of it. I have been freelancing (as a limited company) for over a decade and my main mistake has been undervaluing myself. Totally agree with PP about taking into account your benefits and bonus etc when calculating your day rate. I know it can feel uncomfortable - well it does to me - but I remind myself that I need to pay into a pension, pay my business costs (mainly things like subscriptions for software, laptop, other IT equipment, professional body membership fees, accountant etc), then pay around 25% in tax, then factor in unpaid time when I take holiday or if I was unwell, times when I don't have work or not working at full capacity, and I think there is an element of 'danger money' because you have zero job security!

Good luck!

Yes! Agree with this.

I was in your situation a few years back.

You need to look at what the going rate is in your industry rather than charging your previous salary + a percentage. Don't undercut yourself because the going rate seems so far off of your salary, you're worth at least the standard day-rate because you have proven experience. I ended up charging nearly double my salaried hourly rate.

If your DC receives mid or high rate DLA and you're currently able to claim carers allowance, then you should consider working as a limited company rather than a sole trader.

This is how I work, all the pay goes into the limited company and I pay myself just under the carers allowance earnings limit each month, after childcare + pension deductions. It make it so much easier than constantly declaring variable earnings as a Sole Trader. Plus, if you ever need to draw more money out of the company you can do so as dividends. You'd need to do that math on it, but if you're working very part time or your hours change massively week from work then it's definitely worth doing.

Because that’s the law! It is to stop companies taking advantage

That's interesting, I do currently claim carers allowance and tbh was planning to just cancel it if I go back to work, rather than worrying about limits - as long as I'm confident I'll earn more over a year for example. I don't think I want the added stress of setting up a limited company just to keep claiming, but it's something to think about.

A lot of people saying I need to find out the going rate for my industry - but how would you do this? I do have contacts, but none who are self employed or who would be responsible for hiring contractors.

I'd advocate setting up a limited company to protect your assets, not sure what field you work in OP. In my case using a limited company means that any professional liability stays with it, rather than with me as an individual.

Try doubling what you thought of initally, you can negotiate down from there if necessary.

You really need to take professional advice from an accountant. You can’t afford to be on the wrong side of IR35. An accountant will also indicate the total costs of being self-employed and therefore this will help you determine what to charge.

It really isn't that complicated if you do a bit of research. Own equipment, direct own method of work/autonomy, no restrictions on working for others, no mutual obligation, ability to send someone else in to do the work if you are unavailable, even if you never intend this to happen.

The equipment is something that bothers me since I don't have a laptop. I thought they may provide one, since the work is commercially sensitive and they have a lot of security. But I can see now how that may be tricky from a tax/employment perspective. I'm reluctant to buy one, or to incur any costs at all tbh, because that would rather defeat the purpose. But I'll weigh it all up once I know exactly how many hours/days/months they're looking for.

I should say, my preference is just to go back as a permanent employee. But with the caveat that I'll only work from home, school hours, term time, and will sometimes be unable to work at the last minute due to caring responsibilities. That doesn't fit with their normal job description, but we're discussing all the options. Obviously my day rate will impact which way they go, which may be another reason for going high.

I’m no expert but with one client, tech provided by them and no ability to pass work on, I think hmrc might consider you employed. If you did want to work for other clients would they want to restrict that at all? - that would be another red flag afair. I agree with pp - get advice on this. Some of my clients insisted I indemnify them specifically against an hmrc investigation because it is sooo time consuming and I was more clearly self employed I think than your set up

Feed your cv into an ai bot and tell it your company and ask it for a reasonable day rate.

I work on the basis of 100-200 days per year worked out as follows:

365 days a year

104 weekends (Saturday and Sunday)
8 bank holidays
20 days statutory holiday
= 132 days

365-132 = 233 days

If you work all of them you have no time for your own admin including tax, accounts banking and looking for other contracts. So a maximum of 200 days.

33 days divided by 12 = just under 3 days a month for those things or more holiday.

Don't work under 100 days as you won't earn enough money.

A limited company means you must pay yourself PAYE every month and report it to HMRC every month, or, hire a bookkeeper.

You can look into umbrella companies who will bill the client and then pay you PAYE.

Along to say this too. Your ‘client’ will be breaking the law if they do this and you only work for them. You are effectively an employee and they should be paying employer’s NI for you.

Surely whatever you were on gross oh hour /day , you would add a little extra to cover holidays sickness and lack of work

And yes you need to work for more than one client to be se

I agree with this. If it's just one client, they may class you as employed. However, it is much more of an issue for your employer than you as they would be responsible for paying the extra NI etc that would become due.

Have you checked if you will be IR35 compliant?