Pricing Jobs as Self-Employed: How to Factor in Tax So You Don't Get Caught Out
Quick Answer
When pricing your work, remember that not all the money is yours. Roughly 25–30% of your profit goes to Income Tax and National Insurance. If you price a job at £1,000 and have minimal expenses, expect to keep around £700–750 after tax. Price accordingly.
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The Problem: Pricing Like an Employee
When you were employed, your take-home pay was what landed in your account. Tax was already handled.
As self-employed, the number on the invoice is not what you keep.
If you price as if it were, you'll:
- Undercharge for your work
- Struggle when the tax bill arrives
- Wonder why you're working hard but not getting ahead
The Simple Formula
To work out what you actually keep:
Take-home ≈ Invoice Amount − Expenses − Tax
Or, working backwards from what you want to keep:
Invoice Amount = (Target Take-Home + Expenses) ÷ (1 − Tax Rate)
Where "Tax Rate" is your combined Income Tax and NI rate (roughly 25–35% depending on your income level).
Worked Example: Pricing a Project
Scenario: You want to take home £800 from a project.
Your situation:
- You're in the basic rate tax band
- Combined tax rate: ~27% (Income Tax + NI)
- Project expenses: £50 (materials, travel)
Calculation:
Invoice = (£800 + £50) ÷ (1 − 0.27)
Invoice = £850 ÷ 0.73
Invoice = £1,164
Quote the client: ~£1,150–£1,200
If you'd quoted £850 (take-home + expenses), you'd only actually keep about £620 after tax.
Understanding Your Effective Rate
Your "effective rate" is the combined percentage of your profit that goes to tax.
| Annual Profit | Approx. Effective Rate |
|---|---|
| £15,000 | ~15% |
| £25,000 | ~20% |
| £35,000 | ~24% |
| £45,000 | ~27% |
| £60,000 | ~31% |
These are rough figures—use our calculator for a more accurate estimate.
The key point: the more you earn, the higher the percentage.
Hourly Rate Calculation
If you charge by the hour, here's how to work backwards:
Step 1: Decide your target annual take-home
What do you want to actually keep after tax and expenses?
Example: £35,000
Step 2: Add estimated expenses
Example: £5,000/year for software, equipment, travel, etc.
Step 3: Gross up for tax
If your effective rate is ~25%:
Required income = (£35,000 + £5,000) ÷ (1 − 0.25)
Required income = £40,000 ÷ 0.75
Required income = £53,333
Step 4: Divide by billable hours
Realistically, you won't bill every hour. Account for:
- Admin, marketing, invoicing
- Holidays and sick days
- Gaps between projects
If you work 48 weeks and bill 30 hours/week:
Billable hours = 48 × 30 = 1,440
Hourly rate = £53,333 ÷ 1,440 = £37/hour
Minimum hourly rate: ~£37
If you'd calculated without tax (£40,000 ÷ 1,440 = £28/hour), you'd fall short of your goal.
Day Rate Calculation
Same logic, but for days.
If you bill 180 days/year:
Day rate = £53,333 ÷ 180 = £296/day
Round up to £300/day minimum.
Project Pricing: The Markup Approach
For fixed-price projects, use this quick method:
- Estimate hours to complete the work
- Multiply by your hourly rate (calculated above)
- Add project-specific expenses
- Add a buffer (10–20% for scope creep)
Example:
- Estimated time: 20 hours
- Hourly rate: £40
- Base fee: £800
- Expenses: £50
- Buffer (15%): £127
- Quote: £977 → round to £1,000
What If You're Just Starting Out?
If you're new, you might not know your annual income yet. Use conservative estimates:
- Assume a ~25% combined tax rate
- Add a buffer for unexpected costs
- Review and adjust your rates quarterly
Underpricing to "get clients" often backfires. You'll work hard, pay tax, and have little left.
Common Mistakes
1. Pricing based on gross = take-home
The invoice amount is not what you keep. Factor in tax.
2. Forgetting National Insurance
Many people think "20% tax" and forget NI adds another 6–9%.
3. Ignoring expenses
If a project costs you £100 in travel, add it to the quote.
4. Not accounting for non-billable time
You can't bill 8 hours a day, 5 days a week, 52 weeks a year. Be realistic.
5. Racing to the bottom
Cheap rates attract cheap clients. Price for value.
6. Not raising rates with experience
As you get better, charge more. Your effective rate might also increase—adjust accordingly.
Quick Reference: Tax-Adjusted Pricing
| What You Want to Keep | Approximate Invoice (after expenses) |
|---|---|
| £500 | ~£650–700 |
| £1,000 | ~£1,300–1,400 |
| £2,000 | ~£2,600–2,800 |
| £5,000 | ~£6,500–7,000 |
Based on ~25–30% effective tax rate. Adjust for your actual situation.
FAQ
Should I include tax in my quote?
Quote the full price. Don't break out "your tax" separately—clients pay one number, you handle the tax.
How do I know my effective tax rate?
Use our calculator. Enter your expected income and expenses; it'll show your tax and NI.
What if my income varies a lot?
Use an average or conservative estimate. Update your pricing as you get more data.
Should I charge VAT?
Only if you're VAT-registered (usually after exceeding the threshold). If not, you don't charge it.
How do I raise my rates with existing clients?
Give notice ("From January, my rate will be £X"). Most clients accept reasonable increases.
What about expenses the client pays directly?
If they pay separately (like booking your travel), don't include it in your invoice amount.
Is there a minimum I should charge?
That's up to you, but make sure it covers your costs and leaves something worthwhile after tax.
How often should I review my rates?
At least annually. More often if your income or expenses change significantly.
What about Payments on Account?
POA means you'll pay some of next year's tax in advance. Factor this into your cashflow, not your pricing. See our POA guide.
Should I price higher to "set aside" for tax?
Yes—that's exactly what this article is about. Your price should reflect what you need to cover tax and still meet your take-home goal.
Next Steps
Review your current pricing. Are you accounting for tax properly? Use our calculator to check.
Learn about setting aside tax, separate bank accounts, and allowable expenses.
Back to the Learn hub.
This guide is for general information only. Tax rules change, and everyone's situation is different. Always check the latest HMRC guidance and consider speaking to a qualified accountant if you're unsure.