As a self-employed individual, you are often referred to as a freelancer and many people assume that freelancing is synonymous with self-employment. However, there are some important differences between the two terms, and you need to be aware of these so you can decide which career path is right for you.
Summary: Freelancers and self-employed people are often considered the same when it comes to taxes, although this depends on if you’re registered as a sole trader/sole proprietor or a limited company. Both freelancers and self-employed people face similar risks and get similar benefits from their career paths.
Note: This article is for educational purposes only, and it does not constitute financial or legal advice. Rules and regulations change all the time, so it’s your responsibility to stay on top of tax regulations and other laws in your region as a freelancer or self-employed person.
Is Being Freelance The Same As Self Employed In The UK?
When it comes to tax implications, both freelancers and those who are self-employed have similar obligations. Both must register with HMRC, typically as sole traders or limited companies, depending on their business structure, and they must also keep records of all income they receive as well as any expenses incurred while working.
Freelancers and self-employed people must pay tax each year per government regulations, and this includes income tax and National Insurance. The tax implications can be different if you’re self-employed but you own a limited company. You need to keep track of your own income and expenses, and potentially hire an accountant to help you with this.
Is Being Freelance The Same As Self Employed In The USA?
When it comes to tax implications in the USA, both freelancers and those who are self-employed have similar obligations, much like in the UK. Both must register with the IRS, usually as sole proprietors or limited liability companies, depending on their business structure.
As in the UK, both must also keep records of all income received as well as any expenses incurred. Furthermore, they must pay income tax at their appropriate rate each year along with Social Security/Medicare taxes if applicable.
Similarities Between Self Employed & Freelance
Limited Benefits
From tax implications to the nature of contracts offered by each type of employment, there are certain points that both freelancing and self-employment have in common. Firstly, when it comes to benefits packages, both freelancers and those who are self-employed may find themselves fairly limited.
Similar Tax Implications
Another key similarity between freelancing and self-employment is in the tax implications. Freelancers and self-employed people may be treated the same for these purposes, although things do change if you register as a limited company.
Similar Kinds Of Work
While this can also be a difference for some (see below), many freelancers and self-employed people will take on similar kinds of work. This usually involves short-term, one-off projects with various clients, with some being repeat customers.
Differences Between Self Employed & Freelance
While some self-employed people will have very similar work loads and styles to freelancers, others will be very different. As a freelancer, you may find that most jobs are short term contracts with clients or companies. This means that once the job is completed, there is no guarantee of future work with that same client or company.
On the other hand, if you’re self-employed, you may run a business (perhaps even a physical, in-person one) that sees customers come and go each day. Obviously there are still risks and the potential for dry periods, and some self-employed people will work very much like a freelancer, taking on clients rather than having a business that people seek out themselves.
Tax Implications
There may also be some different tax implications if you’re self-employed but running a limited company (as I alluded to above), and especially if you have employees. This will vary by country, region and state, so always research your tax implications before taking on life as a freelancer or otherwise self-employed person.
Do Freelancers Still Have To Register As Self Employed?
Freelancers usually will have to register as self-employed. This means that they must report their income and expenses to the relevant tax authorities so they can pay taxes on their earnings. There may be some exceptions to this, but you’ll typically need to register as self-employed no matter where in the world you are.
Registering As Self-Employed In The UK
In the UK, freelancers are considered self-employed and must register with HMRC. This means they need to keep records of their income and expenses and pay Class 2 and Class 4 National Insurance contributions.
They also need to submit a Self Assessment tax return every year. Registering as self-employed also means that you may be liable for other taxes such as VAT or Corporation Tax if your annual turnover is above certain thresholds.
It’s worth talking to an accountant about your individual situation so you can make sure you’re fully compliant with all applicable tax laws, no matter where you’re located.
Registering As Self-Employed In The USA
In the US, freelancers are generally considered self-employed and must register with the IRS. Like in the UK, you will need to keep records of your income and expenses and file taxes, sometimes multiple times a year.
Registering As Self-Employed In Europe
In Europe, the requirements for freelancers can vary depending on the country. Generally speaking, however, most countries consider freelancers to be self-employed and require them to register with their local tax authority.
Note that some countries may require certain businesses to pay social security taxes or value added tax if their annual turnover is above particular thresholds.
Do Freelancers & Self Employed People Pay The Same Tax?
The answer to this question varies depending on the country in which you are operating. Generally speaking, most countries have different tax rates for self-employed people and freelancers depending on the kind of business they register. It’s important to talk to an accountant or tax professional about your individual situation so you can make sure you’re paying the correct amount of taxes.
Sole Trader vs Self Employed vs Freelance
Sole Trader | Self-Employed | Freelancer | |
| Legal Status | A sole trader is a self-employed individual who is the sole owner of their business | A self-employed individual is anyone who works for themselves, whether as a sole trader or limited company | Freelancers are also self-employed individuals, but they typically work on a project-by-project basis for various clients |
| Liability | Personally liable for all debts and losses incurred by the business | Personally liable for all debts and losses incurred by the business, unless they set up as some form of limited liability company | Personally liable for all debts and losses incurred by the business |
| Taxation | Responsible for paying income tax on all profits made by the business | Responsible for paying income tax on all profits made by the business | Responsible for paying income tax on all profits made by the business |
| Accounting | Must keep accurate records of all income and expenses and complete a tax return | Must keep accurate records of all income and expenses and complete a tax return | Must keep accurate records of all income and expenses and complete a tax return |
| Business name | Can trade under their own name or choose a different trading name | Can trade under their own name or choose a different trading name | Can trade under their own name or choose a different trading name |
| Business structure | Operates as an individual and has full control over their business decisions | May operate as a sole trader, partnership, or limited company and has full control over their business decisions | Operates as an individual and has full control over their business decisions |
| Client base | May have a consistent client base, but may also work with different clients on a project basis | May have a consistent client base, but may also work with different clients on a project basis | Typically works with various clients on a project-by-project basis |
| Scope of work | May have a narrow or broad scope of work, depending on the nature of their business | May have a narrow or broad scope of work, depending on the nature of their business | Typically has a specific skill set and offers services in a narrow scope of work |
| Benefits | Has full control over their business and may enjoy greater flexibility and autonomy, but typically no state-provided financial benefits | Has full control over their business and may enjoy greater flexibility and autonomy, but typically no state-provided financial benefits | Has full control over their business and may enjoy greater flexibility and autonomy, but typically no state-provided financial benefits |
Is Freelancing Right For You?
Freelancers and self-employed people are generally considered the same in many respects, but there can be some differences between the two career paths. Freelancers are more likely to work on their own for various clients, while self-employed people may or may not set up a business with employees.
For more guidance, check out our article on what you need to know before you start freelancing.
Chris is the creator of Freelance Ready. He originally started freelancing (on Fiverr) while at university, writing and editing website content. He created this website to share his freelancing experience and help others on their own self-employed journeys. He is now a freelance SEO consultant and content editor. You can learn more about Chris here.
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