Freelance Vs Self-Employed: What’s the Difference?
In the ever-growing independent era, many terms are associated with self-employment. Most people refer to a gig worker or a free agent as self-employed, but both have different meanings and contexts. Similarly, terms like ‘your own boss’, small business owner, and out-of-the-house might sound like self-employed but are slightly different from each other. But all these terms could also signify a freelancer.
So, anybody could wonder and need clarification while distinguishing the difference between being a freelancer and self-employed.
History of Freelancing
The term ‘freelance’ first appeared in Sir Walter Scott’s Ivanhoe, where a lord presents his army as ‘free lances.’ Initially introduced in English in the early 19th century, the ‘freelance’ term describes mediaeval mercenaries. They were hired for military service, for which they were paid.
Today, you no longer have to mount a war house or go to battle to become a freelancer. However, there are a few distinctive criteria that differentiate freelancing from self-employment. Let’s compare all of them in detail. Also, you will explore different legal, tax and business management implications here.
What are the Key Differences?
To sum up, a freelancer can be called a self-employer; however, a self-employed person cannot always be a freelancer. There are many differences between the two. The main differences are their activity level, business structure, and commitment.
Comparison of Freelancers with Self-Employed
| Freelance | Self-Employed |
| Freelancers are independent in their profession. They self-manage their business. They can also choose their work location and time. | Self-employment usually involves a broad range of individuals who run their businesses independently. |
| For example, an in-house manager could hire a social media specialist as a freelancer to market his business. | They are responsible for their entire business operations. |
| Freelancers work independently on their clients’ projects and deliver them on time. | Self-employed persons secure their clients and manage day-to-day activities and finances. |
| A freelancer career includes a variety of fields, including writing, designing and dancing. | Self-employment covers broad areas, including trade professionals, creative industries, etc. |
Working Variation Between Freelancer and Self-Employed
Here, we have discussed three critical variations between freelancers and self-employed workers.
- Scale of Operation
Freelancers usually focus on clients’ projects. However, self-employed individuals run a business that involves services or products. They typically employ others.
- Commitment to Work
Freelancers can choose when and where to work. Hence, they have the flexibility of working. In contrast, self-employed should have more consistent working hours and responsibilities. This is especially true when they are doing a client-based job.
- Structure of Business
Freelancers usually work as sole traders but typically on short-term projects. However, depending on their operational needs, self-employed individuals adopt different business structures, such as sole proprietorship, partnership, or limited company.
What are the Legal and Tax Responsibilities for Freelancers and Self-Employed?
Most of the tax and legal implications depend on the size and type of the sole trader and limited company differences. Let’s discuss them briefly below.
Tax Implications
- Freelancers must submit self-assessment tax returns at the start of the year.
- They must also pay income tax, National Insurance contributions, and VAT if their turnover exceeds the threshold.
- Self-employed individuals pay VAT based on their turnover. Also, they pay income tax and National Insurance via self-assessment.
- Self-employed people running their own companies may also need to face corporate tax responsibilities.
Legal Responsibilities
- Freelancers work as sole traders and must review professional indemnity insurance depending on their working criteria.
- Conversely, self-employed people play a role as limited companies and face obligations, including company registration and adherence to business regulations.
Tips and Tricks For Business Growth and Management
Here are the essential tips that play a role in freelance and self-employed business management and growth.
Freelancers:
- For project tracking, instructions and invoicing, use digital tracking tools.
- Do your financial planning, set aside taxes and manage your income.
- Make a transparent research and study client negotiation and relationship management skills.
Self-Employed:
- Create new strategies for expanding the market and building customer relationship management.
- Hire the best talent to broaden your growth.
- Improve your online presence to hunt better opportunities.
Get Professional Support
- Build ideas for better financial management. For expert guidance, get help from Lockhart Amin Accountants. Our expert accountants make your life easier.
- Engage in different opportunities and events based on growth and modern insights.
Wrapping Up
This detailed guide makes clear that freelancers are the same in one sense of being self-employed. But to another extent, there’s a line of separation. Freelancers deal with clients and projects on which they work themselves. However, self-employed individuals manage broader business responsibilities, including legal, tax, staffing, and compliance responsibilities.