What is a freelancer?

Definition of a freelancer

A freelancer is an individual who normally works under contract for different businesses, often taking on multiple contracts in the same period.

As a freelancer is not an employee of the businesses they work for, those businesses don’t have to pay tax or National Insurance contributions for them. They also won’t be required to offer the freelancer the same benefits as an employee, such as holiday pay or a pension plan. 

A freelancer can be a sole trader or work for their own limited company. This means they’ll have to file a Self Assessment tax return each year. 

If they run a limited company, that company will be required to file a Company Tax Return to HMRC, and both final accounts and a document called a confirmation statement each year to Companies House. 

Any freelancer working through their own limited company and drawing a salary from the company will need to register the company as an employer, run a payroll, file payroll forms for the company and make sure all income tax and National Insurance contributions are paid. 

Freelancers who are sole traders will be responsible for their own income tax and National Insurance contributions. Any freelancer may also be registered for VAT.

For freelancers, this increased accounting responsibility is balanced by the freedom to choose their own work and schedule, as well as the ability to charge more for their services than they might earn as an employee.

Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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