Introduction -compare contracting & freelancing (UK)
This short article will aim to briefly compare contracting and freelancing and look at the difference between these. Over recent years, there has been an ever-growing trend for businesses of most types to hire flexible workers. This trend, when they take on people who provide freelance and contract work, is in place of recruiting permanent employees. Therefore, when we look at freelancing vs contracting, there are some key differences to consider with regard to how they work and provide their services.
Initial thoughts
We have seen in recent times the launch of the internet and the worldwide web. What’s more, there has also been an increase in the ease of communication through mobile phones and email. 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 difference between freelance and contract work, there are now over a million freelancers in the UK. There are also many more millions outside of the UK.
How to compare contracting and freelancing
The terms freelancers and contractors apply to workers who work on an independent basis. Key to note, they work for themselves rather than via an employer.
Let’s now take a closer look at those who have their own small business. When we compare the difference in the business structure between those who provide freelance and contract work though, they are quite unalike.
Besides this guide, which takes a look at how to compare contracting & freelancing, we have another guide that may be of interest. This covers what to consider when you move from an umbrella company to your own company. This guide will set out what you should consider when you start up as a limited company contractor.
A comparison between contracting and freelancing
Preliminary thoughts –contracting vs freelancing
When we look at freelance vs contractor (UK), it is notable that freelancers will usually work for multiple clients. They will also do this at any given time. In addition, freelancers also set their own rates. Notably, when we compare freelancing vs contracting, many freelancers also work from home. Therefore, as we compare contracting and freelancing, an example of freelance workers will include web developers. It could also include those who provide other short-term IT projects. In each case, they tend to complete single tasks for each client. Key to note, 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. Very few will have their own company as there is, in most instances, no need to do so.
Some further differences between the two
On the other hand, when we compare the difference between freelance and contract work, recruitment companies will typically hire an independent contractor. In addition, they will usually hire them for a fixed length of time. This could be for a longer term, perhaps a year or several months. As a result, the contractor will tend to work for a single client at a time, on a specific project. In addition, more often than not, the contractor will work on their client’s premises with a set number of work hours. Furthermore, when we look at the difference between freelance and contract work, it is key 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 and they will have agreed hourly or daily rates. Alternatively, the service provider may agree to a set price for a block of work or project. Key to note, freelancers and contractors will work on an independent basis, while in comparison an employee will work for an employer.
Business-to-business basis
Please note, a UK contractor will work business-to-business, either via an agency or directly with the client. The contractor will tend to either:
- Work through and run their own company; or
- Provide their work through an umbrella company. On this website we have summarised the differences between limited company v umbrella. Importantly, for these reasons, many clients will not take on contractors as sole traders.
Compare contracting and freelancing (UK) -other factors
When you work on a self-employed basis, you do not have a choice when it comes to paying higher tax rates. If you earn at a level which places you above the basic rate tax band, you will pay higher tax rates on any of your income which falls in the higher rates tax threshold. Whether you are a limited company contractor or a freelancer, it is best practice to engage a good accountant from the outset.
What’s more, when we look to compare contracting & freelancing, clients that employ self-employed workers also have to make sure that the workers arre officially self-employed people who complete a tax return each year. If it turns out later that they were not, HM Revenue & Customs could chase the client for the tax and NI costs related to the work which the individual did for them.
It is also worth a note that many UK recruiters do not want the added duty of hiring self-employed people. This is because of a particular risk that comes with this. Hence, this is the reason why they usually hire a professional with a contractor limited company.
Compare contracting and freelancing -paying tax
When we look at freelancers and contractors and how they work, both will have to pay tax on their income.
Working through your own company
If the worker operates through their own UK company, they will have untaxed income in the form of dividends. As a result, they must complete a UK personal tax return. When they do so, they can pay over any tax that is due.
Working as self-employed
If the worker operates on a self-employed basis, the income from their work will be untaxed. Therefore, they will also be required to complete a UK personal tax return. As a result, they will be required to pay over income tax and National Insurance contributions on their self-employment income.
Final thoughts
Finally, across all industries, when you compare contracting & freelancing (UK), self-employment is by far the most common way to provide services for independent workers. Key to note, there are also various differences when we compare freelancing vs contracting, as we highlight above. 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