Work out your hourly rate in three steps. Decide what you need the business to pay you over a year. Add everything it costs to run the business. Then divide by the hours you can realistically charge for — not the hours you work. That last number is where most people go wrong. A 45-hour week often carries about 25 chargeable hours, and a rate built on 45 leaves you working full time for part-time money.
At a glance
| Feature | Detail |
|---|---|
| The method | Yearly pay, plus business costs, divided by chargeable hours |
| Chargeable hours | Usually 20–25 out of a 40–45 hour week |
| Working weeks | 46, not 52 — you fund your own holidays and sick days |
| What to add for | Holiday, sick pay and a pension, which no employer pays for now |
| Commonest mistake | Starting from the hourly rate you earned as an employee |
| Rounding | Round the finished number up, never down |
Step 1 — What you need the business to pay you in a year
Start with the year, not the hour, and give it twenty minutes with a notepad. Pick the amount you need the business to pay you over twelve months, before tax. For the wider order of operations — costs, margin, then the market — see the guide to pricing a product or service.
This is not the same as your sales. Sales are everything that comes in; your pay is what is left after the business has paid its own bills. Write down "£5,000 a month" while looking at the bank balance and you will set your rate about a third too low.
If you are a sole trader, the profit your business makes is what you are taxed on, and nobody deducts it along the way. Roughly a fifth to a quarter goes to HMRC in income tax and National Insurance at a full-time living.
Step 2 — Why your old salary is the wrong starting point
When you were employed, a lot was paid for that never appeared on your payslip. Paid holiday, usually 28 days including bank holidays. Sick pay. A pension your employer paid into (by law at least 3% of a band of your pay). Employer National Insurance on top of your salary.
Self-employed, all of that is yours. Take five or six weeks off and you are earning from 46 weeks, not 52 — so every working week funds about 1.13 weeks of living, which is 13% more needed straight away. Put 8% into a pension and you need more again. Allow a week off ill and more again.
So the rule is simple: to stand still, a self-employed person needs to clear roughly a quarter more than the employed salary they would have accepted for the same work — before paying for a single thing the business needs.
Step 3 — What it costs to run the business
List every cost the business has whether or not you have a good month. People consistently write down half of them.
For a van-based trade the vehicle is a category, not a line: the finance or lease payment, fuel, insurance, servicing, tyres, MOT, road tax and breakdown cover. A van doing 20,000 miles a year wears out, and that belongs in the number. Then everything else: public liability and tools insurance, trade registration and renewals, training, tools you replace, the small materials you never manage to bill for, phone, invoicing software, your accountant, advertising and your website, workwear, waste disposal, bank and card fees. Write the annual figure next to each, and do not annualise a good month.
Step 4 — The hours you can actually charge for
Nobody bills every hour they work. Take a normal 45-hour week and watch where it goes: driving between jobs, quoting for work you may not win, collecting parts, answering the phone, invoicing, chasing the invoices nobody has paid, a no-show, a gap on Tuesday that nothing filled.
Seven hours driving, four quoting, five on admin and parts, two on gaps and no-shows, two on the van and the paperwork. That is 20 hours gone and 25 left to charge for. A 45-hour week is a 25-hour week as far as your invoices are concerned. Forty-six working weeks at 25 chargeable hours is 1,150 chargeable hours a year. That is what you divide by, not 2,080.
Working it through: Jamie's Plumbing
Take Jamie, who runs a one-person plumbing business in Reading and takes emergency call-outs. He was employed as a heating engineer on £38,000 a year, which put about £2,600 a month in his pocket, plus 28 days' paid holiday, sick pay and a pension his employer paid into.
What he needs the business to pay him. He wants to be genuinely better off than he was employed, and he now carries his own holiday, sick days and pension. He sets his target at £60,000 a year of pay before tax, plus £300 a month into a pension: £63,600, rounded to £64,000.
What the business costs to run. The van on finance is £3,600 a year, fuel £2,700, and van insurance, road tax, MOT, servicing, tyres and breakdown cover about £2,300. Public liability and tools insurance is £600. Gas Safe registration, renewals and training are £900. Tools he replaces are £1,400, and the fittings and sealant he never bills for about £900. Phone, invoicing software and his accountant come to £1,600. Advertising and the website are £1,500. Workwear, waste disposal and card fees are £500. That is £16,000 a year.
The hours. He works about 45 hours a week and charges for about 25. Four weeks' holiday, a week of bank holidays and a week off ill leave 46 working weeks: 1,150 chargeable hours.
The rate. £64,000 of pay plus £16,000 of costs is £80,000 the business must produce from 1,150 chargeable hours. £80,000 divided by 1,150 is £69.57. He charges £70 an hour.
Play it back. At £70 an hour and 25 chargeable hours, Jamie invoices £1,750 in a normal week. Across 46 weeks that is £80,500 of sales — the word HMRC uses for sales is turnover. Take off the £16,000 of running costs and he has about £64,500 of pay before tax. After income tax and National Insurance that is roughly £4,000 a month in his pocket, £300 of which goes into the pension, leaving about £3,700 a month to live on.
The living-wage check. Employed, he had £2,600 a month plus paid holiday and sick pay. At £70 an hour he has about £3,700 and funds his own holidays, sick weeks and pension out of it. He is properly better off, which is the only reason to take the risk. Had the sum landed at £45 an hour, that would be the moment to change the rate rather than accept it.
Work out your pricing with Plan, free. Plan does the pricing maths with you — costs, margin and what to charge — one short question at a time, in your browser.
The two mistakes that cost the most
Quoting the rate you last earned as an employee. Jamie's £38,000 salary worked out at roughly £19.50 an hour across a 37.5-hour week, so £30 an hour feels like a huge rise. Run it through: £30 times 1,150 chargeable hours is £34,500 of sales, minus £16,000 of running costs, leaving £18,500 before tax. That is less than half what he earned employed, with no holiday pay, no sick pay, no pension, and he owns a van. Your employed hourly rate was the price of your time after somebody else had paid for the van, the insurance, the software and every hour you spent not on a job.
Matching the cheapest person in your area. Somebody local is always cheaper, and there are only three reasons why: their costs are lower, they are busier and living on volume, or they have never done this sum and do not yet know they are losing money. None of those is copyable. Look at the middle of your local market, not the bottom, and if you land above it, give people a reason to pay it: you answer the phone, you turn up when you said, you clear up.
Figures correct as of September 2026. Tax thresholds, fees and rates change; check the linked GOV.UK pages before acting. Prices and costs shown are indicative and vary by area and by what's included.
What is Plan?
Plan is a free business operating system for people starting or newly running a UK business. It walks you, one simple step at a time, from your elevator pitch through brand, product and pricing, to a complete business plan — then uses everything it now knows about the business to help with the basics: logo and brand, marketing, a website, a bank account, funding, insurance, company registration. You can use as much or as little as you want.
Plan's pricing step asks what you want to earn, your costs and your chargeable hours, then gives you the rate and builds the Year 1 profit plan around it.
Frequently asked questions
How do I calculate my hourly rate if I am self-employed? Add the pay you need for the year to the cost of running the business for the year, then divide by your chargeable hours — usually 20 to 25 a week across 46 working weeks. That is around 1,150 hours, not 2,080.
How many hours a week can I actually charge for? Most one-person businesses charge for 20 to 25 hours out of a 40 to 45-hour week. Travel, quoting, ordering parts, invoicing, chasing payment and no-shows all take real time, and none of it appears on an invoice.
Should I charge more than I earned as an employee? Yes, meaningfully more. As an employee you had paid holiday, sick pay, a pension contribution and someone else paying for tools and unbillable hours. Self-employed you fund all of it, so you need roughly a quarter more.
Is it better to charge by the hour or by the job? By the job, once you know how long your jobs take. Customers compare hourly rates, but what they want is a price for the whole thing. A fixed price also means getting quicker earns you more rather than less.
What if my hourly rate comes out higher than local competitors? That is information, not a problem. It means your costs are higher, your chargeable hours are lower, or they are underpricing. If the number holds, hold the price and give people reasons to choose you.
Two ways to do this
Do the sum with Plan, free. Put in what you want to earn, your costs and the hours you can genuinely charge for, and Plan gives you the rate and shows what it means month by month. It runs in your browser — nothing to download, and doing just this bit is fine.
Or do it on paper tonight. Your yearly pay target, a complete cost list and honest chargeable hours are all you need. When you are ready to move an existing rate, our guide to raising your prices covers doing it without losing the customers you want to keep.