According to recent facts and figures, there are currently over 2 million freelancers in the UK alone and they’re contributing around £125 billion to the economy.
This demonstrates the growing popularity of freelancing as a full-time career or side hustle, with more and more people exploring this flexible way of working.
But how many people actually understand what a freelancer is? And to what extent does this differ from the role of a contractor? The two are often confused and the titles are used interchangeably, but there are some notable differences you need to know.
What does a freelancer do?
A freelancer is somebody who works independently, for themselves, as opposed to working for an employer. This means that freelancing is classified as a form of self-employment, even if the person only freelances part-time to supplement their main full-time job (also known as a ‘side hustle’).
The term ‘freelancer’ isn’t actually a business structure in its own right, so a freelancer might run their business as a sole trader or as a limited company.
A freelancer will often work for multiple clients at once, juggling various projects simultaneously. As a result, freelancers will charge for their services on a task-by-task basis or by the day, hour, or something even more granular – a freelance copywriter could charge per word, for example.
Sometimes, if a freelancer works with the same client on a regular, consistent basis, they’ll set a monthly retainer fee.
Are freelancers the same as ‘gig workers’?
Due to the non-permanent and fluid nature of how a freelancer works, they fall neatly under the umbrella of ‘gig work’ or the ‘gig economy’.
This encompasses all those working on projects or with clients on a temporary, flexible basis and therefore not contracted to a full-time role as a permanent employee.
Common types of freelance jobs include:
- Videographer/video editor
- Web developer
- Copywriter/content writer
- Social media manager
- Public relations
- Graphic designer
- Accounting and bookkeeping
- Editing and proofreading
What is the difference between a freelancer and a contractor?
Freelancers and contractors are both self-employed professionals that offer independent services in exchange for a fee, but there are a few nuances that separate them.
While freelancers are generally nomadic and work remotely on an ad-hoc basis, contractors tend to provide a service for a designated length of time.
Another point of difference is that contractors can sometimes be tasked with managing subcontractors or employees of the business they’re working for – something freelancers are rarely asked to do.
The benefits of being a freelancer
There are a number of reasons why freelancing is an appealing option for more and more professionals around the world, but certainly in the UK, including:
- Freedom to ‘be your own boss’ and the associated advantages of working so autonomously.
- Flexibility around where, when, and how you work, so you aren’t tied to the traditional 9-to-5 life.
- Being able to work remotely means you can travel and see the world while you earn.
- Flexibility around working hours and location is also beneficial if you have pets or a young family.
- You can scale your workload up and down according to what’s happening in your life, which means you can scale your earnings too.
- In some instances, freelancers get paid significantly more than employees. In a recent survey, nearly 60% of freelancers said they make more money than their counterpart working in a full-time job.
There are some potential downsides to consider too though
- Freelancing (and self-employment in general) doesn’t offer the same job security as full-time, contracted employment.
- Freelance wages aren’t always as consistent or predictable as a monthly employment salary.
- When you’re self-employed, you’re responsible for your own taxes as your income isn’t taxed at the source as it would be through Pay As You Earn (PAYE).
- You don’t get access to employment benefits such as employer pension contributions, private healthcare, or annual bonuses – something to consider when you’re working out what to charge!
- Working for yourself can get a little lonely at times.
It’s crucial to consider the cons of freelancing before embarking on a full-time freelance career so you can make more informed decisions.
How does a freelancer pay tax?
As we mentioned earlier, a freelancer’s earnings aren’t typically taxed at source as they aren’t paid through the PAYE system like the employee of a business is.
This means a freelancer is required to submit tax returns to HM Revenue & Customs (HMRC) to report all income, gains, and expenses so they can pay the necessary tax.
What type of tax return a freelancer needs to submit is dictated by how their freelance business is structured:
- Sole trader
- Limited company
Below, we summarise each so you can decide which one might be right for you.
The benefits of freelancing as a sole trader
- As the only person attached to the business, you get to keep all the post-tax profits for yourself.
- Sole traders don’t have to register with Companies House, only HMRC, which also makes the process quicker and easier.
- No shareholders, partners or directors means you will always have total control over the business, including all financial decisions.
- You’ll need to submit Self Assessment tax returns to report your income and pay any tax. If you were to operate a limited company, you’d need to submit a Company Tax Return, and then a Self Assessment return to report your personal income.
The benefits of freelancing as a limited company
- As a limited company, the business’s finances and liabilities are viewed as separate from your own, which means your personal cash and assets won’t ever be involved.
- Operating a limited company might be more tax efficient, depending on your earnings and how much you take out of the business.
Note: You need to register your business with Companies House and HMRC if you want to set up as a limited company.
Head over to our Freelancer Hub where we have a whole host of guides and resources.