It is usually mistaken that contracts and freelancers are the same as they are both self-employed and complete specific projects for their clients. Here we will explore the differences and hopefully make it clearer.
What is a contractor & freelancer?
A contractor and freelancer both regarding tax are in the same position and there’s practically no difference. They both pay National Insurance contributions, must complete self-assessment tax returns and are responsible for their own tax bills.
Typically, a freelancer will be more common within media and creative industries, for example writers, photographers, designers and web developers or web consultants. They can even extend to many other industries such as the music, acting, translating and film production.
Whereas, contractors occur predominately in the IT industry. You can also see contractors frequently in the construction industry.
They both own their own business operating through a limited company. Some may even choose to operate as a sole trader if they are a sole entity. They are fully responsible for their company and making sure all required taxes and legislations are followed. Usually an accountant is hired to assist with this, even though it is a cost it saves a lot of hassle and time therefore, allowing company owners to focus on the sole work of the business.
Contractors and freelancers, as service providers, have the autonomy to choose their work environment. Establishing a home office is often a prudent choice, offering easy accessibility and the flexibility essential for running one’s own company. While the advantages of being your own boss and working independently are numerous, it’s crucial to address potential risks. Securing the business with the help of appropriate insurance plans, such as the best general liability insurance for contractors and freelancers can be a vital step. This can ensure protection against unforeseen circumstances that may arise in the course of business operations. This level of insurance coverage can provide contractors with the peace of mind and financial security necessary to focus on their work and navigate the dynamic landscape of self-employment.
A big difference is the rate of pay, as contractors are usually on a 6month contract for one client that pays for full-time hours. Whereas, a freelancer could be working for six or seven clients all paying on a daily or hourly basis.
Below we have condensed the different points against each to assist you with your understanding further;
Freelancer
- Typically, works for multiple clients at once paid on a hourly or daily basis
- Self-employed and do their own self-assessment
- Can operate as a limited company or sole trader
- Common in media, marketing and creative industries
- Usually works from a home office
Contractor
- IT industry prominent
- Self-employed and must do their own self-assessment
- Can operate as a sole trader or a limited company
- Usually only works for one client at a time on a contract for roughly 6 months
- Generally, works in the client’s office
If you are a contractor or freelancer insurance is an important deliberation to choose between. You can claim Professional Indemnity Insurance if a client claims against your work.
