Compare contracting and freelancing

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Introduction 

In this short guide, we’ll aim to briefly compare contracting and freelancing (UK). As part of this, we’ll look at the different ways of working between a freelancer & contractor. Indeed, there is a difference between freelance and contract workers in not only how they operate in terms of company or self-employed, but also how they work day to day. Over recent years, there’s been a growing trend for businesses of most types to hire flexible workers. Indeed, this includes UK contracting professionals. This trend, when taking on people who provide freelance and contract work, is in place of recruiting permanent employees. Therefore, when we look at freelancing vs contracting, there’s some key differences to consider. Indeed, when we compare contracting & freelancing, this covers how they perform their work and provide their services.

In this guide, we’ll look into an independent contractor vs freelancer (UK) and find out how they both work. What’s more, we’ll research the key distinctions between a UK independent contractor vs self-employed freelancer. This will involve taking a look at certain areas of how both work and how they provide their services. Therefore, we’ll look into the areas of freelancing vs contracting and explain how each type of worker operates on an independent basis.

Initial thoughts 

Freelancer vs contractor -what to think about first

We’ve seen in recent times the launch of the internet and the worldwide web. What’s more, there’s also been an increase in the ease of business contact through the use of mobile phones. Further still, the use of email has made contact far easier across the business world for all types of workers. This has, in turn, resulted in the freelance worker industry growing from strength to strength.

When we compare contracting and freelancing and look at the two ways of working, there’s now over a million freelancers in the UK. There’s also many more millions outside the UK in the rest of the world. These workers provide services to clients by working for themselves. Indeed, this could be on a freelance or contract basis, depending on what services they provide.

How to compare contracting and freelancing (UK)

The terms freelancers and contractors apply to workers who operate on an independent basis. In fact, some workers will title themselves ` freelance contractors’ or `contracting freelancers’ which does kind of confuse things. Indeed, this is because a freelancer and a contractor work in different ways as we highlight in this guide. However, the terms freelance contractor or freelance IT contractor are well-known terms. What’s more, this really means a contractor who is freelance and not an employee. When we compare freelancing vs contracting and look at these two terms, both work for themselves, rather than via an employer.

As part of how researching these two ways of working, let’s now take a closer look at those who have their own small business. When we consider the business structure between those who provide freelance and contract work, they’re quite unalike. Indeed, whether you provide freelance or contract work, there’s some key distinctions in the way that they’ll carry out their work.

Besides this guide on how to compare contracting & freelancing, we have a further guide that may be of interest to you. This covers what to think about when you move from an umbrella company to your own company. Indeed, this guide sets out the steps to take when you start up as a limited company contractor. 

Compare UK contracting and freelancing 

First thoughts on UK contracting vs freelancing

When we look at freelance vs contractor (UK), some freelancers such as graphic designers will typically work for multiple clients at once. They’ll also do this at any given time and also set their own rates. Indeed, when comparing freelancing vs contracting, for those that hire freelancers, many will work from home. Therefore, as we compare the two, a good example of a freelance workers is a graphic designer. What’s more, it could also include web developers and those who provide other short-term IT projects. In each case, they tend to complete single tasks for each client. Also, a freelance worker will start freelance jobs for new clients on an ongoing basis.

When we compare contractor vs freelance, many freelancers work on a self-employed basis. In fact, when we compare contractors and freelancers very few of the latter will have their own company. This is because there is, in most instances, no need to do so.

Some further distinctions between freelance & contracting

There’s some further key distinctions when we compare contracting and freelancing. For instance, when we compare the difference between freelance and contract work, recruitment companies will normally hire an independent contractor. What’s more, they’ll hire them for a fixed length of time. This amount of time could be for several months or a year, or even for a longer term.

As a result, via the contracting option, there’ll be one work agreement at a time between the client and contractor. Therefore, the main difference between contractor and freelancer is a contractor will tend to work for a single client at a time. They’ll also work on a specific project. What’s more, usually the contractor will work on their client’s premises with a set number of work hours. Therefore, when we look at the difference between freelance and contract work, it’s key to note that limited company contractors usually work via recruitment agencies and they only work for one client at a time.

In both cases, freelancers and contractors will likely carry out full-time work. They’ll also have agreed hourly or daily rates. On the other hand, the service provider for a contractor may agree to a set price for a block of work or project. Therefore, freelancers and contractors will work on an independent basis, while in contrast an employee will work for an employer. In both cases, when we consider freelancer or contractor vs employee (UK), the take-home pay is better as a contractor or freelancer. What’s more, when we compare contractor vs full time, in most cases the work for the former is more flexible in terms of their work hours.

Business-to-business basis

A UK contractor will work on a business-to-business basis, usually via an agency. On the other hand, they may have a contract directly with the client. As a result, in the cases of both of these types of work, the contractor will tend to either:

  • Work through and run their own company, as part of providing the work. Indeed, they’ll use their skills through this and their company will have a contract with the agency or client. What’s more, their contract will be for a period of six or perhaps twelve months. The work may also be extended if there’s more to complete as part of the project.
  • Provide their skills and work through an umbrella company. As part of this, there’ll be a contract through the umbrella company with the agency or client. What’s more, the contractor will be part of the umbrella company payroll for their work. Again, the contract may be extended if the project that they’re working on has more time to run.

In this guide, we have shown the key distinctions between limited company v umbrella. As you can see, there are quite a few different aspects between the two. These come by way of how the two work and provide their services to end clients. Also, many clients won’t take on freelancers or sole traders as they prefer contractors. We will explain the reasons for this later in this guide.

Other factors to look at when we compare contracting and freelancing (UK) 

Taxes and NIC

When comparing the two working scenarios, if you operate on a self-employed basis, you’ll pay more by way of income taxes. This is because you don’t have a choice when it comes to paying higher tax rates on your income. Therefore, if you earn at a level which places you above the basic rate tax band, you’ll pay higher tax rates on any of your income which falls in the higher rates tax threshold. What’s more, whether you’re a limited company contractor or freelancer, it’s best practice to engage a good contractor accountant from the outset.

When we compare contracting & freelancing, clients that employ self-employed workers also have to make sure that the workers are officially self-employed people who complete a tax return each year. If it turns out later that they’re not, HM Revenue & Customs (HMRC) could chase the client for the tax and NI costs related to the work which the worker did for them.

It’s also worth a note when we compare the difference between the two ways of working, that many UK recruiters don’t want the added duty of hiring self-employed people. This difference between contractor and self-employed freelancer is due to a particular risk that comes with self-employed freelancers. Hence, this is the reason why they’ll usually hire someone with a contractor limited company. However, when we look at freelancers and contractors and how they work, both have to pay tax on their income.

Work through your own company

When we compare freelance vs independent contractor, if the worker operates through their own UK company, they’ll have untaxed income in the form of dividends. What’s more, they may have a director salary too through their company. Therefore, because of having untaxed income in the form of dividends, they must complete a UK Self Assessment tax return. When they do so, they can pay over any tax that’s due to HMRC after completing their personal tax return. As part of this, they’ll usually appoint an accountant. As part of this, the accountant will look after all of their tax filing and advise them what to pay to HMRC.

A worker who is self-employed

When we compare self-employed vs contractor, if the freelance worker operates on a self-employed basis, the income from their work will be untaxed. Therefore, as a result of their untaxed income they’ll also complete a UK personal tax return. Indeed, when we compare contractor vs self-employed freelancer, the latter will need to complete a tax return to report their self-employment income. As part of this, they’ll pay tax and NI on this to HMRC, after they complete and file their tax return. Once again, they may also appoint an accountant to help them with their tax filing and payments to HMRC.

Final thoughts 

As a final note, across all industries, when you compare contracting and freelancing, self-employment is by far the most common way to provide services for independent workers. Indeed, there’s also various distinctions when we compare freelancing vs contracting, as we highlight above. When we compare freelance versus contract, contractors will usually have their own company, however many freelancers do not. What’s more, freelancers will usually have more than one piece of work on at once. On the other hand, contractors usually focus on one contract at a time. Also, in some specialist and high-end sectors such as IT, clients and recruitment companies prefer to engage UK contractors for their specialist work.

Link to Contractor Advice UK group on

LinkedIn https://www.linkedin.com/groups/4660081/

Published On: January 4th, 2024 / Categories: Moving Into Contracting /

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