5 Hidden Costs That Can Sink a Freelance Business

Adam F.

Last updated: 8 July 2025

When you calculate your freelance rate, it's easy to factor in your desired salary. But what many new freelancers forget are the hidden, ongoing costs of doing business. Ignoring these can be the difference between profit and peril. Here are five often-overlooked costs you must budget for.

1. Professional Insurance

This is non-negotiable. Professional Indemnity insurance protects you and your business if a client claims your work was negligent or caused them a financial loss. It’s a sign of a professional and is often required by larger clients. Public Liability insurance is also wise if you ever work from a client's office or a co-working space.

2. The "Software Stack"

The "free trial" period ends. The tools you rely on to do your job cost money, and it adds up. This includes everything from Adobe Creative Suite and Microsoft 365 to project management software like Asana, accounting software like FreeAgent, and even your website hosting and domain renewal fees. Audit your subscriptions annually.

3. Your Pension

When you're employed, pension contributions are often handled for you. As a freelancer, you are your own pension provider. If you don't actively contribute to a personal pension (like a SIPP - Self-Invested Personal Pension), you are heading for a retirement with only the State Pension to rely on. Treat your pension as a mandatory business cost.

4. Unpaid Time: Admin, Marketing, and Sick Days

You cannot bill clients for every hour you work. A significant portion of your time will be spent on non-billable tasks:

• Admin: Invoicing, chasing payments, accounting.

• Marketing: Updating your portfolio, networking on LinkedIn, writing proposals.

• Downtime: Holidays, and importantly, sick days where you are unable to work.

When you calculate your day rate, you must account for the fact that you will not be working and earning for every single day of the year.

5. The Tax Bill Surprise

This isn't a "hidden" cost, but the amount often is. Many freelancers are caught off guard by their first Self-Assessment tax bill. You must set aside money for both Income Tax and National Insurance contributions from every single payment you receive. A good rule of thumb is to put 25-30% of every invoice into a separate savings account so you are never caught short.

Unsure how these costs affect your pricing? Use our freelancer rate calculator on the homepage to see how adding your estimated costs impacts the rate you need to charge.