It's partly because the IR35 rules that keep getting mentioned for those of us in the UK are such a scam.
They were originally supposed to stop people pretending to be a contractor while actually working like any other employee just to get favourable tax treatment. There were quite a few people abusing that loophole previously.
But the rules recently changed so that now big clients are responsible for determining whether a contractor is a disguised employee or not instead of the contractor themselves. This is supposed to be assessed for each specific engagement but in the real world big clients don't like risk so they usually insist that anyone conceivably caught by the IR35 rules must work through an "umbrella" company. The end client pays the umbrella and the umbrella employs (that is, actual legal and tax employment) the contractor. This guarantees that the end client isn't accidentally working with a disguised employee so they don't end up with a nasty unexpected tax bill later.
The problem with this is that the umbrella company will take a small cut and will also then deduct all of the costs for both an employee and a large employer from the rate they receive from the end client before paying out the rest to the contractor. So as the contractor your rate ends up covering not only the taxes you'd pay for an equivalent salaried employment position (which is what IR35 was supposed to cause) but also a big chunk extra for employer taxes and other statutory payments (which is explicitly not how IR35 gigs are supposed to work but it's almost completely universal in the industry and the government seems to be in no hurry to do anything about it) plus a small extra fee for the umbrella company's profits.
This is how you get the huge proportion of your headline rate turning into costs that ukoki described. You can't think of that rate as being comparable to other payments like an employee's salary or real business-to-business sales (including true outside IR35 contract or freelance work). Working via an umbrella is actually worse than all of them. But if you want gigs with big clients who have risk averse legal teams (but I repeat myself) it's the game you have to play now.
Yep with the inside-IR35 contracts I need to charge a premium, but even the +20% premium I charged with my current contract is not close to covering my extra costs.
I'm also strongly incentivised to do stuff like timing long inside-I35 contracts (eg 12 months) so they straddle two tax years so that the marginal tax rate in each year only approaches "very unpleasant" and doesn't reach "extremely unpleasant". And with the remaining time either do outside-IR35 contracts if I can find them, or just stop working and enjoy my time and money because at 70%+ marginal tax rates the motivation really starts to dissapear.
They were originally supposed to stop people pretending to be a contractor while actually working like any other employee just to get favourable tax treatment. There were quite a few people abusing that loophole previously.
But the rules recently changed so that now big clients are responsible for determining whether a contractor is a disguised employee or not instead of the contractor themselves. This is supposed to be assessed for each specific engagement but in the real world big clients don't like risk so they usually insist that anyone conceivably caught by the IR35 rules must work through an "umbrella" company. The end client pays the umbrella and the umbrella employs (that is, actual legal and tax employment) the contractor. This guarantees that the end client isn't accidentally working with a disguised employee so they don't end up with a nasty unexpected tax bill later.
The problem with this is that the umbrella company will take a small cut and will also then deduct all of the costs for both an employee and a large employer from the rate they receive from the end client before paying out the rest to the contractor. So as the contractor your rate ends up covering not only the taxes you'd pay for an equivalent salaried employment position (which is what IR35 was supposed to cause) but also a big chunk extra for employer taxes and other statutory payments (which is explicitly not how IR35 gigs are supposed to work but it's almost completely universal in the industry and the government seems to be in no hurry to do anything about it) plus a small extra fee for the umbrella company's profits.
This is how you get the huge proportion of your headline rate turning into costs that ukoki described. You can't think of that rate as being comparable to other payments like an employee's salary or real business-to-business sales (including true outside IR35 contract or freelance work). Working via an umbrella is actually worse than all of them. But if you want gigs with big clients who have risk averse legal teams (but I repeat myself) it's the game you have to play now.