Compare contracting and freelancing

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Introduction 

This short guide will 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’s 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 each 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. When taking on people who provide freelance and contract work, this trend is in place of recruiting permanent employees. Therefore, when we look at freelancing vs contracting, there are 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 compare independent contractor vs a freelancer (UK) and find out how they work. Moreover, we’ll examine the key distinctions between UK independent contractor vs self-employed freelancer. This will involve comparing contractor vs freelancer and looking at how both work and provide their services. Therefore, we’ll research the areas of freelancing vs contracting and explain how each type of worker operates independently.

Initial thoughts 

First thoughts on freelancer vs contractor

The Internet and the World Wide Web were launched several years ago. What’s more, due to the invention of mobile phones, business contact has become easier. Furthermore, email has made contact far more accessible for all workers worldwide. This has, in turn, resulted in the freelance worker industry growing from strength to strength.

When we compare contracting and freelancing and examine the two ways of working, there are now over a million freelancers in the UK, and there are many more millions outside the UK. These workers provide services to clients by working for themselves. Indeed, depending on which services they provide, this could be freelance or contract work.

How do you compare contracting and freelancing (UK)?

The terms freelancers and contractors apply to workers who operate independently. Some workers will title themselves ` freelance contractors’ or `contracting freelancers,’ which confuses things. Indeed, this is because freelancers and contractors 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 means a freelance contractor and not an employee. Therefore, when we compare freelancing vs contracting and look at these terms, both work for themselves rather than via an employer.

As part of our research on these two ways of working, let’s look at those with their own small business. They’re different when considering the business structure between freelance and contract work. Indeed, whether you provide freelance or contract work, there are some critical distinctions in how they’ll carry out their work.

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

Compare contracting and freelancing in the UK

Preliminary thoughts on UK contracting vs freelancing

Regarding freelance vs contractor (UK), some freelancers, such as graphic designers, typically work for multiple clients simultaneously. They do this at any given time and set their rates. Indeed, when comparing freelancing vs contracting, many will work from home for those who hire freelancers. Therefore, comparing the two, a graphic designer is an excellent example of a freelance worker. Moreover, it could 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 continuously start freelance jobs for new clients.

When we compare contracting and freelancing, many freelancers work as self-employed. Furthermore, very few freelance professionals have their own company when we compare contractors and freelancers. This is because there is, in most instances, no requirement to do so.

What are some further distinctions between freelance & contracting?

There are some further vital distinctions when we compare contracting and freelancing. For instance, when comparing the difference between freelance and contract work, recruitment companies will typically hire an independent contractor for a fixed length of time. This length of time could be several months, a year, or even 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 a contractor and a freelancer is that a contractor tends to work for a single client at a time. They work on a specific project and usually work on their client’s premises for a set number of work hours. Therefore, when we look at the differences between freelance and contract work, it’s vital to note that limited company contractors usually work via recruitment agencies and only work for one client at a time.

In both cases, freelancers and contractors will likely carry out full-time work. They’ll 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 work independently while employees work for an employer. In both cases, when we consider freelancer or contractor vs employee (UK), the take-home pay is better for contractors and freelancers. What’s more, when we compare contractor vs full-time, in most cases, the work for the former is more flexible regarding their work hours.

Compare contracting and freelancing -business-to-business basis

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

  • Work through and run their own company to provide the work. Indeed, they’ll use their skills through this, and their company has a contract with the agency or client. Moreover, their contract usually lasts for six or perhaps twelve months. The work may 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 with the umbrella company via the agency or client. Moreover, the contractor is part of the umbrella company payroll. Again, the contract may be extended if the project they’re working on has more time to run.

In this guide, we’ve shown the critical distinctions between limited company v umbrella. As you can see, the two have quite a few different aspects. These come through 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’ll explain the reasons for this a bit later in this guide.

What are the other factors to consider when we compare contracting and freelancing (UK)? 

Taxes & NIC

Is a contractor better off than a freelancer (self-employed) if they provide very similar services? The answer here is usually yes, as there are key differences to consider. When we compare contracting and freelancing, you’ll pay more through income taxes if you operate self-employed. This is because you don’t have a choice when paying higher tax rates on your income. Therefore, if you earn at a level that places you above the basic rate tax band, you’ll pay higher tax rates on any of your incomes that fall within the higher rates tax threshold. Moreover, whether you’re a limited company contractor or freelancer, engaging a good contractor accountant is the best practice.

When we compare contracting and freelancing, clients who employ self-employed workers must ensure that the workers are officially self-employed and complete a tax return each year. If they’re not, HM Revenue & Customs (HMRC) could chase the client for the tax and NI costs related to the worker’s work.

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

Work through your own company

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

A self-employed worker

When we compare contracting and freelancing, the income from their work is untaxed if the freelance worker operates as self-employed. Therefore, they complete a UK personal tax return because of their untaxed income. Indeed, when we compare contractor vs self-employed freelancers, the latter must 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 appoint an accountant to help them with their tax filing and payments to HMRC.

Final thoughts 

Finally, when you compare contracting and freelancing, self-employment is the most common way to provide services for independent workers. Indeed, there are various distinctions when we compare freelancing vs contracting, as we highlight above. When we compare freelance versus contract, contractors usually have their own company; however, many freelancers do not. Moreover, freelancers typically have more than one piece of work 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: April 6th, 2024 / Categories: Moving Into Contracting /

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