What's the difference between a freelancer and a contractor?

What is a freelancer?

Freelancers are self-employed workers who tend to work from home or their own premises, and usually work for several clients on various projects, often simultaneously.

Freelancers are common in the creative and media industries, so you’re likely to find freelance writers, designers, photographers and web developers. You may also come across freelance tutors, translators and even accountants.

It’s important to understand that ‘freelance’ isn’t a formal legal status, but a way for you to describe how you work. From a UK tax point of view, freelancers come under the self-employed umbrella, and so they’re responsible for registering with HMRC as self-employed and completing a self assessment tax return each year.

What is a contractor?

Contractors are also self-employed workers, so like freelancers they complete self assessment tax returns and are responsible for sorting out their own tax bills and National Insurance contributions. From a tax point of view, there’s really no difference between a freelancer and a contractor.

But in practice, contractors work a little differently to freelancers: usually a contractor will work for one client full-time for a set period, often in the client’s office.

You’re most likely to come across contractors in the IT industry. IT contractors are usually brought in for around six months to work on a specific project or to fill a temporary skills gap.

There are also contractors in the construction industry, but building contractors are a little different, and we’re not going to cover them here.

Freelancers, contractors and businesses owners

Although you may not think of freelancers and contractors as small business owners, that’s effectively what they are. Some freelancers and contractors are registered as sole traders, while others work through their own limited company.

Choosing whether to operate as a sole trader or a limited company makes a difference to your liability and tax responsibilities. Check out our article on the difference between a sole trader and a limited company for more information.

Freelancer vs contractor

To help you get to grips with these two similar but slightly different terms, here’s a quick summary of freelancers and contractors:

Freelancer

• Self-employed, and responsible for paying tax through the self-assessment process
• May be set up as a sole trader or a limited company
• Generally works for several clients at once, often on a per-hour or per-day basis
• Often works from home or own premises
• Most common in media, marketing and creative industries

Contractor

• Self-employed, and responsible for paying tax through the self-assessment process
• May be set up as a sole trader or a limited company
• Usually works for one client at a time, often full-time on a particular project for several months
• Generally works in the client’s office
• Most common in the IT industry

Whether you're a freelancer or a contractor, insurance is an important consideration. In particular, professional indemnity insurance can protect you if a client makes a compensation claim against you because you've made a mistake in your work. Check out our freelancer insurance page and our page on insurance for contractors for more information.