Business Glossary

What is a Freelancer

Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.

Freelancers are skilled professionals who exercise their talents on a per-job or per-task basis. While an employee will work exclusively for one company, freelancers may find themselves working for a variety of clients simultaneously. Freelancers are invariably self-employed and are responsible for paying their own income tax and National Insurance, as well as arranging their own private pensions.

They can pursue freelance work on a short- or long-term basis, depending on the needs of the company hiring them and the specifics of their contract. While a company may hire the same person for a variety of freelance jobs, they are not required to keep using the same freelancer outside of the confines of a given contract.

Hiring freelancers can be advantageous for businesses as they provide access to skill, talent and experience on a pay-as-you-go basis. They do not have the same long-term obligations or overheads such as pension plans, sick pay and holiday pay that conventional employees are required to have.

In the wake of the Covid-19 pandemic, the UK has seen a sharp rise in freelancers for this reason. The pandemic has created a landscape where companies want to keep their liabilities to a minimum, and contractors want the freedom to keep their options open.

How does freelancing work?

When companies contract freelancers, they pay a fixed fee that is usually negotiated before work takes place. This may be a fixed sum for the whole project or payment at an hourly rate. The freelancer then sends an invoice which is entered as an expense on the company balance sheet.

Freelancers are self-employed, and it is their responsibility to manage every aspect of running their business, including:

  • registering as self-employed with HMRC

  • managing their profit and loss accounts

  • filling out a self-assessment tax return every year

  • building and maintaining a client list or CRM

  • choosing the relevant insurance for their business activities

  • opening a business bank account (while not a legal requirement, this is recommended for freelancers)

  • building their own invoice and contract templates

Examples of freelancers

Now we know the definition of a freelancer. But where are they most commonly employed? Freelance jobs are usually abundant in the design, creative and technology industries. Freelancers are commonly used by marketing agencies to supplement their in-house talent as and when a given project demands it.

Common freelance jobs include:

  • Graphic designers
  • Web designers
  • App developers
  • Copywriters
  • Proofreaders/editors
  • Virtual assistants
  • Accountants
  • Social media strategists

There is a range of websites in which companies can search for freelancers with the skills they require such as Upwork, Fiverr and PeoplePerHour.

Find out how Square can help freelancers make invoicing easier and get paid faster >.

The pros and cons of freelancing

If you are considering becoming a freelancer, it is important to make an informed decision as to whether this is the right career move for you.

Let’s take a look at some of the benefits of becoming a freelancer:

  • you can start freelancing in your free time alongside your day job

  • you have complete autonomy over your working life and hours

  • your operating expenses, professional development and research costs are tax-deductible

  • unlike other business structures, you get to keep 100% of your profits

  • you get to choose your clients and the type of work you do

That said, there are some inherent disadvantages to becoming a freelancer. These include:

  • very little work and income security

  • your income may be erratic and vary from one month to the next

  • no paid holidays, sick days or workplace pension

  • you will have to find time to manage your business and its books alongside client work

  • freelancers can easily fall into the habit of overworking or under-charging and burn themselves out

The pros and cons of using freelancers

The advantages of hiring freelancers really speak for themselves:

  • it’s a budget-friendly alternative to taking on a new employee

  • you have flexible access to specialist talent

  • you only pay for the work that’s done with no need for employee benefits

  • freelancers are highly motivated to deliver great results in order to secure future work

That said, there are also some caveats which include:

  • freelancers do not owe you loyalty, and you may lose them to a competitor

  • finding a freelancer that meets your specific needs can be time-consuming

  • companies don’t have the luxury of vetting freelancers to the same extent that they do in-house employees

More on making the leap from employment to working freelance >.

Frequently asked questions about freelancers

Can I include both freelancers and employees in my workforce?

Yes. In fact, many companies use freelancers to supplement their existing workforces when a given project demands it. Freelancers can fill in skill gaps among your existing employees or lighten their administrative load, allowing them to deliver a better quality of service on behalf of your brand.

What payment terms should I use when hiring freelancers?

Freelancers typically send an invoice to the client when their work is complete. The client is then usually expected to make payment in full within 30 days. However, it may benefit your relationship with freelance talent if you are able to make payment sooner. Paying within 14 days of receiving your invoice may help freelancers with cash flow and help them feel more valued.

Can I freelance alongside my day job?

Yes. Indeed, many nascent freelancers pursue freelance work alongside their existing jobs in order to mitigate the risks of starting a freelance career from scratch. Just remember to declare all income received from freelance work to HMRC. You will have to fill in a tax return for every year you are self-employed – even if you are also in full-time employment.

Do I need to become self-employed to be a freelancer?

Yes, HMRC recommends registering as self-employed as soon as possible when you start working as a freelancer. At the very latest, the newly self-employed are required to register by the 5th of October after the end of the tax year in which they began trading.

What is the difference between a freelancer and a sole trader?

Freelancers and sole traders are both classed as self-employed by HMRC.

However, sole trader is a recognised business structure whereas freelancer is not. While there is some overlap between the two (sole traders also get to keep all of their profits and need to carry out similar bookkeeping), there are also some fundamental differences. For instance, sole traders can take on employees where freelancers usually will not. Freelancers can register as limited companies or limited liability partnerships.

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