A Freelancer's Guide to               Understanding            Take-Home Pay

Adam F.

Last updated: 8 July 2025

You’ve just sent an invoice for £2,000. It feels great, but that £2,000 isn't what you actually get to keep. As a UK freelancer (sole trader), understanding the difference between your revenue and your actual take-home pay is vital for managing your finances. Let's break it down simply.

Revenue vs. Profit

First, you must separate your business from your personal finances.

• Revenue: This is the total amount of money your business receives from clients (e.g., the £2,000 invoice).

• Business Costs: These are the expenses you incur to run your business (software, insurance, marketing, etc.).

• Profit: This is your Revenue minus your Business Costs. Profit = Revenue - Costs. This is the figure that you will be taxed on.

Calculating Your Taxable Profit

Let's say in one year you earn £50,000 in revenue. You've calculated your allowable business expenses to be £5,000. Your taxable profit is £45,000. This is the number HMRC is interested in.

The Main Deductions: Tax and National Insurance

From your taxable profit, you will pay two main things:

1. Income Tax: In the UK, you have a Personal Allowance (the amount you can earn before paying any income tax). After that, you pay tax at different bands (Basic Rate, Higher Rate, etc.).

2. National Insurance: As a sole trader, you typically pay two types: Class 2 (a flat weekly rate if your profits are over a certain threshold) and Class 4 (a percentage of your profits over another threshold).

These two deductions make up the bulk of what you owe.

So, What is Your Take-Home Pay?

Your actual take-home pay is what's left after you've paid tax and National Insurance from your profit.

Take-Home Pay = Profit - (Income Tax + National Insurance)

For many freelancers, this final number can be surprising. A good habit is to immediately set aside 25-30% of every invoice into a separate bank account specifically for your tax bill. This way, you're treating your "take-home pay" as roughly 70-75% of your profit from the very start.

Want to see how this works in practice? Our homepage features a simple rate calculator that helps you factor in your desired earnings and costs to find the rate you need to be charging.