How to work out your hourly rate when self-employed

Most people set their hourly rate by looking at what others charge, then knocking a bit off to be safe. That's how you end up busy and short of money.

Here's a better way. It takes five steps and about ten minutes. All the numbers below are an example, so swap in your own.

How to work out your hourly rate: start with the income you want

Decide what you want to earn in a year before tax. Not revenue. Profit, which is what's left after business costs.

Say you're a self-employed cleaner and you want £30,000 profit.

Next, add your yearly business costs. Fuel, supplies, insurance, phone, software. Say they come to £4,000.

So you need £34,000 of revenue over the year.

Check that profit covers your tax

Don't skip this. Tax comes out of that £30,000.

GOV.UK says that for 2026-27 the Personal Allowance is £12,570. Income above that, up to £50,270, is taxed at 20% (GOV.UK, income tax rates, checked 22 October 2026). On top of that, GOV.UK says you pay Class 4 National Insurance of 6% on profits between £12,570 and £50,270 (GOV.UK, self-employed National Insurance rates, checked the same day).

Here's the maths on £30,000 profit:

• Profit above the allowance: £30,000 minus £12,570 = £17,430
• Income tax at 20%: £3,486
• Class 4 National Insurance at 6%: £1,045.80
• Total: about £4,532

You keep roughly £25,468. If that's enough to live on, good. If it isn't, raise the profit target now, not later. This sketch ignores things like student loan repayments and other income, so check your own situation.

If you want a method for setting that money aside, I wrote about it in how to save for tax when you're self-employed.

Count your billable hours, not your working hours

This is where most people get it wrong. You don't bill for every hour you work.

Start with the weeks you'll really work. Take off holiday, sick days, bank holidays and quiet weeks. Employees get paid holiday. You don't, so you have to cover it in your rate.

Say you work 46 weeks a year.

Then work out how many of your weekly hours you can actually charge for. Travel, quotes, messages, invoicing and chasing payments are all real work, but nobody pays for them directly. Many people find that only half to two thirds of their time is billable. That's my observation, not a published figure, so track your own week for a fortnight and see.

Say you can bill 25 hours a week.

That gives you 46 x 25 = 1,150 billable hours a year.

Divide revenue by billable hours

£34,000 divided by 1,150 hours is £29.57.

Round up to £30 an hour.

Compare that to the number most people use. If you'd divided £34,000 by a full-time 40 hours across 52 weeks (2,080 hours), you'd get £16.35. That rate looks fair and leaves you about £14 an hour short on the year. That's the trap.

Add a buffer, then sanity-check the market

Prices drift. Costs rise. Customers pay late. A small buffer helps.

I'd add 5% to 10% for things you can't predict: a van repair, a month with no work, a customer who never pays. On £30 an hour, 10% is £33.

Now look at what people charge near you. If your number is far above, ask whether your costs are too high or the market is cheaper. If it's far below, you might be underpricing. The market tells you the ceiling. Your maths tells you the floor.

Never go below the floor. Every job under it costs you money.

Turn the hourly rate into a job price

Customers often don't want to hear "£33 an hour". They want a total.

Estimate the hours, multiply by your rate, then add materials. Say a deep clean takes five hours. That's £165 plus supplies.

Quoting a fixed price also keeps you honest. If it takes seven hours, you've learned the next quote should say seven.

Not sure when it's time to charge more? I covered that in should I raise my prices when I'm self-employed.

Review it twice a year

Your rate isn't fixed. Revisit it when your costs change, when your target changes, and every April when the tax year starts.

Two questions to ask each time:

1. Did I hit my profit target last year?
2. Which hours did I work that nobody paid for?

If the answer to the second is "a lot", that's a rate or a process problem. Fix the rate first.

My take

Getting paid properly starts before the work does. A rate that covers tax, holiday and the hours nobody sees is the most boring and useful number in your business.

At Vcents we're building a way to ask for money from a WhatsApp chat, so the part after the job takes less of your time. But the price comes first. Get that right.

Sources

• GOV.UK: Income Tax rates and Personal Allowances, checked 22 October 2026
• GOV.UK: Self-employed National Insurance rates, checked 22 October 2026