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

Calling the shots as your own boss does have its downsides, however. There’s the responsibility of filling your own tax returns. In addition, you’ll have to organise and save for your own pension plan rather than opting in to the plans of an employer. Plus, you may end up working extended hours because of business commitments.

Before you take the step towards working for yourself, understanding the three different self-employment job categories can help you decide whether it’s the right choice for you.

What is the difference between a freelancer, a consultant and a contractor?

When you decide to leave regular work and make the jump towards become self-employed, you’ll generally fall into one of three job categories.

• Freelancer
• Consultant
• Contractor

All share many similarities. Each require you to complete work for clients – whether that’s project-based work for freelancers and contractors, or advice-based business that consultants provide.

Becoming self-employed as any of the three categories mean you effectively become a small business. That’s because you’re generating income, for yourself, in order to continue operating – just like a regular company does.

Finally, if you're a sole trader you'll need to complete self-assessment tax returns in the UK by HMRC.

What is a freelancer?

Freelancer is a term that describes someone who works from home, a public space or their own premises. They can undertake multiple pieces of client work at once, giving them the freedom to select what projects to take on – hence the ‘free’ moniker.

They’re commonplace in creative and media industries, as well as in teaching and financial services.

The typical duration of work within a freelancing role depends on how big the individual project is. As such, many freelancers aren’t tied in to a single contract and can choose how much work to take on.

What is a consultant?

A consultant is someone who provides expertise to companies in a certain field. They don’t complete client work themselves. Rather, they give businesses the tools to implement their proposals. Essentially, they’re problem solvers who can help organisations overcome obstacles.

This field is reserved for those with a high amount of experience in a profession. That generally means working in a senior or high-ranking position within the area they’re offering advice on.

The time period a consultant would usually work on a project depends on the size of the issue they’re advising on. Consultants can usually command high rates for their expertise, making it a lucrative career choice for many.

What is a contractor?

Contractors are self-employed individuals who work on a contract-by-contract basis, as an external worker for a business. Rates and durations are normally agreed beforehand in a signed agreement. This often includes the option for extending the arrangement, should both parties wish to continue.

Construction and IT workers often operate as contractors. Some can be self-employed, or work for a contracting agency. Generally, they’ll only work on one project at a time. Once that is completed, they can seek work on another.

The length of a contract depends on the project size and the predicted date of completion, which may be a hard or soft deadline, depending on the client’s preferences.

Contracting as a sole trader vs limited company

When you begin life as a self-employed person, you’ll either register yourself as your own limited company or a sole trader.

The choice you make here is important, as limited companies and sole traders have different tax responsibilities, impacting how you file returns.

Generally, consultants and contractors operate as part of a limited company. That’s because they provide limited liability, separating the business they’ve set up from themselves. If something goes wrong financially, their assets aren’t at risk.

Freelancers can also register as limited companies, but some prefer to register as sole traders. Many choose this as it’s an easy setup, requiring minimal paperwork and admin. Plus, their financial information isn’t made public, like it would be in a limited company.

Does a consultant or contractor have employees?

This depends on the:

• Role
• Industry
• Work

Some contractors will employ subcontractors, who can be brought in to help them with demanding project workloads. This is commonplace in the construction industry, where contractors will pay additional skilled labour for a large job.

Consultants may also hire subconsultants for the same reason. This could be to add additional expertise that can bolster their own knowledge offering when undertaking client work – especially in areas such as IT, where several different functions are sometimes needed for large scale tasks.

More information

If you’re considering making the leap into self-employment, assess your options with our helpful guide, which helps answer the question of, should you become a contractor?

Perhaps you’re already there or just about to launch? If so, you should consider protecting your business against mistakes in your work with professional indemnity insurance.