Should I register as self-employed or a freelancer?

The freedom of self-employment has appealed to thousands across the UK over the past couple of years, with many looking to turn their side hustle into a full time gig and make a go of things on their own.

With that freedom, however, comes a new level of responsibility and admin, which can be overwhelming. Luckily for you, we’re here to cut through the jargon and give you the lowdown on whether you should register as self-employed or a freelancer.

  1. Difference between freelancer & self-employed
  2. How to register my status
  3. Contract work
  4. National insurance and tax contributions

Difference between freelancer & self-employed

Legally, there isn’t much difference between being self-employed and being a freelancer. In both cases, you work for yourself and you handle your own taxes. The difference comes with the type of work you carry out and whether you employ other people.

Generally, freelancers will work alone and will undertake a number of short-term jobs for a variety of clients. They’ll usually negotiate a rate with the client and then carry out the work themselves. As such, freelancers may have autonomy over who they work for, but not so much over the work itself, as they’ll usually be working towards the client’s requirements. In that way, while a freelancer is technically self-employed, a lot of the time it can still feel like working for someone else.

Conversely, the self-employed label tends to be associated with business owners or those with a lot more freedom over the work they do. Self-employed individuals tend to have much more autonomy over who they work for, the hours they work and exactly what work they do. They will often also employ others to carry out work for them, be that as permanent employees or freelancers. In some cases, where the individual is the sole owner and operator of the business, they may be referred to as a sole trader. As a sole trader, you’ll have to follow the same rules regarding registering with HMRC and paying the relevant fees and taxes.

Whichever of these categories you fall into, through the eyes of the law you’ll most likely be classified under the self-employed and contractor employment status. This means that you’ll be responsible for keeping records of your business expenses, filing a self-assessment tax return each year and paying the required amount of income tax and National Insurance contributions.

To find out which employment status fits you best, give the Government’s Check Employment Status for Tax (CEST) tool a go.

How to register my status

Registering your employment status as a sole trader or self-employed professional with HMRC through the Government’s online registration portal is a relatively straightforward process.

To make the application process as smooth as possible, make sure you have the following information to hand:

  • The date you started your business
  • Your National Insurance number, home address and other personal details
  • Any information relating to the work you do

Once you’ve registered, within 7 to 10 days you’ll be sent a letter from HMRC, with your 10-digit Unique Taxpayer Reference (UTR). Also, an online HMRC account will be set up, so you can access all of the digital services offered by the Government.

Contract work

Contract work, simply put, is when an individual is signed up on a short-term contract to fulfil a particular task or job. They won’t be considered a full time employee of the company they’re working for, and instead will complete work over a set period of time (usually a few weeks or months) and then leave. Crucially, though, they are still classed as self-employed individuals.

Contract work is incredibly common across various creative and consulting fields, and is a way of freelancers guaranteeing a more stable income over a set period of time. However, it also provides flexibility to both the employer and the freelancer. The employer is under no compulsion to retain the worker’s services on a long-term, permanent basis and the freelancer is able to work with multiple clients on a variety of different projects. As a contractor, you may also be paid more than a conventional employee due to your expertise in your particular job role.

Despite the positives, it’s also important to be realistic and remember that although contract work offers stability over a set period of time, once that time is up there’s no guarantee of more work. The worker will also still have to take care of their own taxes and any other financial affairs. It’s also imperative to remember that although you may appear to be a regular employee of the company you’re doing contract work for, and in some cases may receive some benefits (e.g. pension contributions), you won’t be entitled to many of the usual employee benefits or perks.

If you are considering doing contract work, be aware that companies will not hire individuals unless they have public liability insurance in place.

National insurance and tax contributions

Whether you’re self-employed or a freelancer, you’ll still need to pay income tax, along with class 2 and class 4 National Insurance contributions. How much you pay will be determined by your Self Assessment tax return, which you’ll need to submit by the end of January each year. Also, if your annual turnover exceeds the VAT threshold (£85,000 for tax year 2022-23), then you’ll need to register for VAT too.

Once you’re registered, you’ll make payments to HMRC on 31st January and 31st July each year, but you can arrange a payment plan with HMRC to have these staggered.

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