The contractor’s favourite number, done properly
In the UK contracting world, the day rate is the currency everything is priced in. £500 a day sounds like £130,000 a year — until you remember that contractors don’t get paid holidays, don’t get sick pay, spend weeks between contracts, and pay their own insurance and accounting.
This calculator converts day rates to salary equivalents honestly. It asks about your billable days, your costs and your tax position, so the “equivalent salary” it shows is one you can actually compare against a permanent offer. It works in reverse too: enter a salary and see what day rate you would need to match it.
How to use it
- Enter your day rate (or the day rate you are considering).
- Enter how many days per year you expect to bill. The UK contracting convention is 220–230 days; be realistic about gaps between contracts.
- Add your annual contractor costs: accountancy, insurance, umbrella margin or limited-company running costs.
- Choose your working arrangement: limited company, umbrella, or sole trader — the tax treatment note adjusts accordingly.
- Read your gross contract income, your costs, and your comparable salary figure.
What it calculates and how the formula works
| Step | Formula |
|---|---|
| Gross contract income | Day rate × billable days per year |
| Net of costs | Gross contract income − annual costs |
| Salary equivalent (rough) | Net of costs adjusted for lost benefits |
The “comparable salary” figure is the honest bit. A permanent employee gets paid holidays (28 days in the UK), employer pension contributions (minimum 3% under auto-enrolment), sick pay, and employer-paid National Insurance. The calculator applies a conventional adjustment — typically reducing the contract income by 20–30% for comparison purposes — and shows its working so you can change the assumption.
Assumptions:
- Billable days default to 220 (UK convention: 260 weekdays minus 30 for holidays, sickness and gaps). Adjust to your market.
- The benefits adjustment is a planning convention, not a precise valuation of your specific benefits package.
- Tax is not computed precisely; the tool compares gross-to-gross and flags that limited company, umbrella and sole trader routes tax the same income differently.
Worked example: £500/day inside or outside?
James is a software contractor in London offered a 6-month contract at £500/day, outside IR35, through his limited company. He expects 220 billable days:
- Gross contract income: £500 × 220 = £110,000
- Costs: £3,000 (accountancy £1,500, insurance £900, company costs £600) → £107,000
- Benefits-adjusted comparison: £107,000 × 0.75 ≈ £80,250 comparable salary
So the £500/day contract is roughly equivalent to an £80k permanent salary before accounting for the flexibility and risk of contracting. James also knows a permanent offer of £85k with good benefits might actually beat it. Without the adjustment, he would have told himself it was “a £110k job” and taken a worse deal.
Important considerations and limitations
- IR35 matters enormously in the UK. If your contract is inside IR35, you are taxed like an employee but get none of the benefits — your effective take-home can be 20–25% lower than the same day rate outside IR35. This calculator flags the distinction; it does not compute IR35 status (that needs a proper status assessment).
- Gaps between contracts are the silent killer. The 220-day convention already assumes about 6 weeks unpaid. If your market has longer gaps, reduce the days — the salary equivalent falls fast.
- Umbrella vs limited company vs sole trader change take-home materially. Umbrella contractors pay employer’s NI and the umbrella margin out of the day rate. The tool shows which route you selected and notes the direction of the effect.
- Currency and market: day rates are a UK/Australian convention; US contractors usually quote hourly. Use the hourly rate calculator for the US market framing.
- Browser-local: your figures never leave your browser.
Frequently asked questions
How do I convert a day rate to an annual salary?
Multiply the day rate by your billable days per year (often 220 in the UK). Then subtract your costs and adjust down 20–30% for the benefits a permanent employee gets. £500 × 220 = £110,000 gross contract income, roughly an £80k salary equivalent.
What day rate should I charge as a contractor?
A common starting point is your target salary divided by billable days, grossed up for costs and risk. If you want the equivalent of a £70k salary: £70,000 ÷ 220 ≈ £318/day before costs, taxes and the contractor risk premium — most contractors end up 30–50% above the naive conversion.
How many billable days are there in a year?
The UK contracting convention is 220–230: 260 weekdays minus holidays, sick days and gaps between contracts. Use 220 as a conservative default and 230 only if your pipeline is consistently full.
Does IR35 affect my day rate calculation?
Yes. Inside IR35 you pay broadly employee-level tax without employee benefits, so the same day rate is worth significantly less. Many contractors inside IR35 negotiate higher day rates to compensate. Get a proper IR35 status determination — this tool estimates pay, not tax status.
What is the difference between this and the hourly rate calculator?
This tool is built around the contractor day-rate convention with billable days, contracting costs and the benefits adjustment. The hourly rate calculator is the simpler salary↔hourly converter for employees.
Is my data uploaded anywhere?
No. All calculations run locally in your browser.
Related tools
External references
- GOV.UK — Understanding off-payroll working (IR35)
- GOV.UK — Working for yourself (self-employed)
- UK Government — Work out your employment status for tax
This tool provides estimates for guidance only and is not professional financial, tax, or legal advice.