What is a freelancer?
There are three types of freelancer. They are defined by the way they’re taxed and whether or not they are paid as employed or self-employed.
There is no technical definition of the word ‘freelance’.
Sometimes people are unsure which they are as the word freelance means different things to different people.
Even HMRC get confused. Especially HMRC.
Click on each type to view a different pathway to financial support during the current coronavirus crisis.
PAYE or Payroll Freelancer
- Typically on short term contracts, or dailies/weeklies
- Paid through the payroll system of the employer
- PAYE system is used
- National Insurance and (usually) income tax taken off by the employer using a tax code
- Receive a payslip
Sole Trader Freelancer
- Registered with HMRC as a ‘sole trader’
- Described by the government specifically as ‘self-employed’
- Typically invoices after the event, and waits for money, and waits, and waits…
- Keeps records of income and business-related expenses
- Has to submit a tax return at the end of each income tax year
- A type of business, so taxed on profit, not turnover
Limited Company Freelancer
- The person and the business are two separate legal entities
- Typically used by freelancers who need to keep business assets separate from personal belongings
- Typically businesses with expensive equipment or risking their own finance in the work they do
- Take money out of the company via a mixture of salary and dividends
Don’t forget that if you freelance in more than one way, you may be eligible for more than one type of support during the coronavirus pandemic.