How do you work out an hourly rate as a tradesperson?
A rate that is too low does not show straight away: the diary is full and customers are happy. The problem appears when the van breaks down, the insurance renewal arrives or you are off sick for a week. A properly calculated rate pays for your time, your tools, the unexpected and your holidays.
The method works for any trade that charges for time: plumbers, electricians, joiners, decorators, tilers, locksmiths, gardeners, handymen. You need a calculator, last year’s bank statements and an hour of quiet. It is not tax advice: an accountant can confirm the tax figures for your situation.
Step 1: decide the profit you want to make
Start from your life, not your trade. How much do you need each month for the mortgage or rent, bills, food, savings and a pension? Then add the tax you will pay on it. The simplest approach for a sole trader is to set a profit target before tax, the figure HMRC will tax after your allowable expenses.
In our example, Dan is a self-employed plumber. He wants about £2,500 a month after tax. He and his accountant estimate that a profit of £36,000 a year before Income Tax and National Insurance gets him there.
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Step 2: list every business expense for the year
Go through the last twelve months of statements and list everything the business costs, except materials you recharge to customers. GOV.UK explains that allowable expenses are deducted from your income to work out your taxable profit. Dan’s list (example amounts, replace them with yours):
| Expense | Per year (example) |
|---|---|
| Van: finance or lease, fuel, servicing, insurance, parking | £6,500 |
| Insurance: public liability and tools | £900 |
| Tools and equipment, including replacements | £1,500 |
| Phone, software for quotes and invoices, accountant | £1,400 |
| Website, marketing, trade body or scheme fees | £1,000 |
| Training, certification, workwear | £700 |
| Total | £12,000 |
Commonly forgotten: small consumables you never recharge (fittings, sealant, fixings), bank charges, and the cost of replacing a big tool every few years (divide its price by its useful life and add one year’s share).
Step 3: count your real billable hours
This is the step that changes everything. A year is not 52 weeks on site, and a day is not 8 billed hours.
| Calculation | Days |
|---|---|
| Weekdays in a year (about) | 260 |
| Minus 5 weeks’ holiday | − 25 |
| Minus bank holidays (8 in England and Wales in 2027) | − 8 |
| Minus sickness, training, bad weather (be prudent) | − 7 |
| Working days | 220 |
On an 8-hour day Dan drives between jobs, collects parts from the merchant, writes quotes, answers the phone and does his invoices. Track what you really do for two weeks: many tradespeople find they bill far fewer hours than they thought. Dan uses 5 billable hours a day.
220 days × 5 hours = 1,100 billable hours a year.
Step 4: the calculation, and what it tells you
Labour income needed = profit target + expenses
Hourly rate = labour income needed ÷ billable hours
Dan: (£36,000 + £12,000) ÷ 1,100 h = £48,000 ÷ 1,100 = £43.64 an hour
Here is how that rate moves with the hours you really bill, for the same profit and costs:
| Billable hours a year | Rate needed |
|---|---|
| 900 h (about 4.1 h a day) | £53.33 |
| 1,100 h (5 h a day) | £43.64 |
| 1,250 h (about 5.7 h a day) | £38.40 |
| 1,400 h (about 6.4 h a day) | £34.29 |
The lesson: cutting wasted time pays as well as raising prices. Faster quotes, better-planned rounds and fewer trips to the merchant let you earn the same with a lower rate, or earn more at the same rate.
Day rate
Many trades quote by the day. Multiply your hourly rate by the billable hours in a full site day, not by 8: if a full day on one job gives Dan 7 billable hours (no travel between jobs), his day rate is about 7 × £43.64 = £305.
Step 5: tax, National Insurance and VAT
Your profit target already includes the tax you will pay, but you still need to put the money aside as you go:
- Income Tax and National Insurance are paid on your profit after allowable expenses. Rates and thresholds change: check them on GOV.UK each tax year or ask your accountant, and move a fixed share of every payment into a separate tax account.
- Vans and big equipment are usually claimed as capital allowances rather than everyday expenses, according to GOV.UK. Your accountant will tell you how this affects your tax bill.
- VAT: you must register if your taxable turnover over the last 12 months goes over £90,000 (GOV.UK). If you are registered, your hourly rate is before VAT and you add VAT on your quotes and invoices. If you are close to the threshold, plan ahead: crossing it can change what your private customers pay.
Materials, call-out charges and emergencies
Your hourly rate only pays for your time. Everything else goes on the quote as a separate line:
- Materials: cost price plus a margin that pays for choosing, collecting and storing them, and for the risk of returns or breakage.
- Call-out or travel charge: a fixed amount per visit, possibly by zone. It pays for some of the driving you cannot count as billable time.
- Evenings, weekends, emergencies: a surcharge agreed in advance, on the phone or on the quote.
- Minimum charge: for example one hour, so that a twenty-minute job across town does not lose you money.
For the quote itself, see our guide on how to write a quote as a tradesperson. If your new rate is higher than your old one, our guide on announcing a price increase has messages you can send to regular customers.
Comparing with local prices without underselling yourself
| Your calculated rate is… | What to do |
|---|---|
| Close to local prices | Use it. You are in line with the market and you cover your costs. |
| Well above | First look for more billable hours and check your costs. Then justify the difference: availability, response time, guarantee, tidy work, reviews. |
| Well below | Raise it. You are leaving money on the table. Start with new customers, then regulars with notice. |
Homeowners comparing quotes do not only look at the price. They look at how clear the quote is, how quickly you replied and what other customers say. A tradesperson with plenty of recent, detailed Google reviews can charge more than an unknown competitor, and gets the call back more often. Our guide to Google reviews for tradespeople shows how to collect them without extra admin.
Mistakes to avoid
- Copying the rate of someone with different costs (no van, no premises, no staff)
- Counting 8 billable hours a day
- Forgetting holidays, bank holidays and sick days
- Spending the tax money because it sat in the main account
- Never reviewing the rate while fuel, insurance and parts keep rising
The template to work out your own rate
My hourly rate for [year]
1. Profit target before tax: £______ (A)
2. Business expenses for the year (van, insurance, tools, phone, accountant, marketing, training, other): £______ (B)
3. Labour income needed = A + B = £______ (C)
4. Working days = 260 − holiday − bank holidays − sickness margin = ______ days (D)
5. Billable hours per day (measured over two weeks): ______ h (E)
6. Billable hours per year = D × E = ______ h (F)
7. Hourly rate = C ÷ F = £______ (before VAT if registered)
8. Day rate = hourly rate × billable hours in a full site day = £______
Redo it at the start of every year and whenever a big cost changes. Keep the sheet: it is also useful when talking to your bank or accountant.
The steps at a glance
Five steps to set an hourly rate that covers your profit, expenses and tax.
- Set a profit target. The yearly profit before tax that gives you the take-home pay you need.
- List expenses. Van, insurance, tools, phone, accountant, marketing and training over twelve months.
- Count billable hours. Working days after holidays, bank holidays and sickness, times the hours you really bill each day.
- Divide. Profit target plus expenses, divided by billable hours, gives your hourly rate.
- Plan tax and VAT. Set aside tax and National Insurance, and watch the £90,000 VAT threshold.
This guide for your trade
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Sources
The rules quoted in this guide come from these official pages, checked on October 28, 2026.