When you start out as a contractor one of the first things you’ll need to do is set your daily rate. You’ll need to calculate a suitable rate that represents fair value for the services that you will be providing your clients.
There’s a lot to take into account and you shouldn’t just pluck a figure from the sky, but we’re here to help.
Make sure you calculate your daily rate as soon as possible, opportunities can arise at a moments notice and you must ensure that you are ready with a day rate that is fair for the client and that also satisfies your needs.
What you need to take into account
Working as a contractor is different to being a permanent salaried employee. Your employer would have covered extra costs above your gross salary; you’ll have been entitled to benefits like holiday pay and much more.
With this in mind, you need to take factors such as these into account when settling on your daily rate.
Most notably, as a contractor you’ll need to pay both employers and employees national insurance on salary that you draw out of your limited company (excluding dividends).
Your accountant can tell you more about how this works and what you can expect to pay based on your predicted day rate.
You’ll have to pay accountancy fees, so you’ll want to make sure that you can cover these easily.
Contractors are coveted for their skills
Contractors are highly sought after because of their expert skills and knowledge. Consequently, this comes at a premium and contractors are expected to charge a higher daily rate than that of their equivalent working in a permanent role.
Have a look around at contractors in your field who have similar skills and experience as you and you’ll get a good idea of what day rate you should be charging. Your accountant and recruiters can also help you with this.
What other costs do you need to consider?
This will vary according to how you work, but those items which are solely for business purposes will need to be covered, like:
- Computer and IT equipment
- Office stationary, business phone bills etc.
- Pension contributions
Calculating your daily rate
The best way to calculate your day rate is to work backwards. Work out how much money you need to live off each year and add to that the costs that we highlighted above.
Once you have done this divide the number by the total number of days in the year that you expect to be working and then you’ll arrive at a rough daily rate. This number doesn’t have to be set in stone. You can refine it according to short and long-term work, you might consider lowering your rate where a large number of days are guaranteed and increasing it for short-term projects.
The key is to remember to be realistic about how many days you can expect to work – the average is about 160.
Why Integro Accounting?
Integro Accounting is the UK’s only specialist provider of fixed fee, limited company accountancy services for contractors, consultants and freelancers that was established to an award winning standard – our Practice Manager, Maria Hickmott FCCA, won The British Accountancy Awards’ ‘Accountant of the Year’ in 2011.
We were set up with the vision of providing a service that is the ultimate for the dynamic, busy professional of today in a language you understand.
Integro Accounting have designed a bespoke service for the contractor who is always on the go; never forgetting that one size will never fit all.
The relationship you have with your accountant is the most important factor in our service which is why we will always offer unlimited contact with your own personal accountant; whether that contact is via the phone, email or face to face.
We have our 3 offices located in London, the South-West and on the Bedfordshire and Buckinghamshire border. There are also meeting locations in many of the major cities and towns across the Home counties, South-West and South Wales, all conveniently placed so that you never have to travel far to meet your accountant.
If you have any questions about contracting or would like to find out more about how Integro Accounting can help you and business please call Christian on 01525 303984, email email@example.com or request a callback.