In the world of independent work, nowadays there are quite a few terms that could be associated with self-employment: 

‘gig-worker’, ‘working for yourself’, ‘casual labour’, ‘your own boss’, ‘consultant’, ‘external’, ‘free-agent’, ‘small business owner’, ‘contractor’, ‘out-of-house’ are just a few.

All of these can have slightly different meanings depending on the context in which they are used. But all of them could also imply that somebody is a ‘freelancer’. 

So it’s no wonder this leads to confusion when it comes to distinguishing the difference between being a freelancer and the more detailed meaning of being self-employed.  

The quick and quirky history of freelancing 

The first documented use of the term 'freelance' appears in Sir Walter Scott's Ivanhoe, where a lord describes his compensated army as 'free lances'. Initially introduced into the English language in the early 19th century, 'freelance' described mediaeval mercenaries who offered their military services to the highest bidder.

You’ll be pleased to hear that you no longer have, strap on your armour, mount a war-horse and go charging into battle to be a freelancer. 

But there are a few distinct criteria that define this from self-employment. Let’s explore them by comparing the concepts of freelancing versus self-employment in its broader sense.  

And shed light on the various legal, tax and business management implications.  

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Definitions and key differences

Cutting a long story short, a freelancer is always ‘’technically’’ self-employed. However, people that are self-employed are not always freelancers.

There's a lot of crossover between the two. But the main distinctions between freelancers and self-employed individuals often lie in their scale of operation, commitment, and business structure.

Freelance defined:

Freelancers are independent professionals who self-manage their business, choosing when, where, and with whom they work. This autonomy and flexibility allows them to select projects that match their skills, interests, and financial goals.

For example, a marketing manager of an in-house team might hire an external freelance photographer to create images for a brochure of their company's products.

Usually they work alone, and are ‘briefed’ on projects by their clients that they deliver within an agreed turnaround time. Most freelancers work for multiple clients simultaneously.

They can operate as either a Sole Trader or a Limited Company. Freelance careers span a diverse range of fields—from writing and graphic design to catering and dancing.

Self-employed defined:

Self-employment encompasses a broad category of individuals who run their own business or work independently. This term applies to those who own and operate a business in any form, whether it's as a sole trader, partnership, or even a limited company.

Self-employed individuals are responsible for the entirety of their business operations, from securing clients to managing day-to-day activities and finances. The scope of self-employment can vary widely, covering professionals in trades, services, creative industries, and more.

Key differences:

• Scale of operation

Freelancers typically focus on specific projects for various clients, whereas self-employed individuals may run a business that involves a broader range of services or products, potentially employing others.

• Commitment

Freelancers can choose when and how much they work, offering high flexibility. Self-employed people might have more consistent business hours and responsibilities, especially if they manage a client base or employees.

• Business structure

Freelancers commonly operate as sole traders, but with a focus on short-term projects. In contrast, self-employed individuals could adopt various business structures, including sole proprietorships, partnerships, or limited companies, depending on their growth and operational needs.

What's the difference between sole trader and self-employed?

Legal and tax implications

Most of the implications in this area stem from the typical business size and type differences between sole traders and limited companies. There are more complicated points relating to contacting or partnerships, but we’ll keep this simple for now.

Taxes:

• Freelancers typically need to submit self-assessment tax returns, and pay income tax and National Insurance contributions based on their earnings. As well as VAT if their turnover exceeds the threshold.
• Self-employed individuals also pay VAT based on turnover, and income tax and National Insurance via self-assessment. Those running a limited company also face corporate tax responsibilities. 

Legal responsibilities:

• Freelancers generally operate as sole traders. So they may need to consider professional indemnity insurance depending on their field of work.
• Self-employed individuals, operating as limited companies, face obligations like including company registration, adherence to business regulations, and potentially, employer responsibilities.

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Tips and tools for business management and growth

We’ll leave you with a few basic key tips that are important for success in any freelance and/or self-employed business. That we recommend researching and learning about.

Freelancers:

• Use digital tools for project tracking and invoicing.
• Get a handle on financial planning: set aside taxes and manage variable income.
• Study client negotiation and relationship management skills.

Self-employed:

• Build strategies for market expansion and customer relationship management.
• Consider hiring and diversifying offerings for growth.
• Optimise and enhance your online presence and network for opportunities.

Tools and support:

• Implement online accounting software like Crunch for simpler financial management.
• Engage in mentorship, professional networks and events for support and growth insights.

I'm self-employed, can I get a credit card?

The same but different

From this comparison it‘s clear that although being a freelancer is in one sense the same as being self-employed, but to an extent we can draw a line of separation. 

Mainly form the distinct challenges resulting from different modes of operation between one-person, freelance sole traders and limited companies with multiple staff members. 

While freelancers deal primarily with client contracts and project deliveries by themselves, self-employed business owners manage broader operational systems and legal, tax, staffing and compliance responsibilities.

Whatever path you choose for you and your business, Crunch has always got your back with award-winning accounting software and unlimited expert support. We’ll be cheering you on in your quest for small business success.