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Does ‘freelance’ mean the same as ‘self-employed’ ?

Both terms are widely misused and wrongfully treated as interchangeable.  The word ‘freelance’ carries no legal definition whilst self-employed does (see below). Freelance is simply a term used to describe people working independently, which could be through a variety of legal entities/capacities:

(i) as a sole trader or partnership (need to register as self-employed)

(ii) as a Director of a limited company (need to register a limited company with companies house)

(iii) as a contractor working through an agency (need to register with an agency  or umbrella company)

Who needs to register as self employed?

Anyone (in the UK) who operates either as a sole-trader, a partner, or a member of a limited liability partnership needs to register as self-employed. This means that they need to complete what’s called a CWFI form from HMRC website downloadable here  http://www.hmrc.gov.uk/forms/cwf1.pdf

Can I be employed by someone at the same time as self-employed?

Yes. If for example you are conducting work as a sole trader outside your employment (what is normally referred to as 5-9 working) then you need to register as self-employed to declare your income with the HMRC.

Of course your employer’s contract may have provisions that limit you from conducting work outside your employment which you will need to check in your Employment contract.

Does registering as self-employed mean I am self-employed?

No. The status of your employment is ultimately determined by the nature of your working relationship with your employer and not the statutory documentation. You can be deemed to be an Employee in an Employment Tribunal even if you have registered as self-employed.

As a guideline, Business Link recommends yourself the following questions to determine whether you are self-employed or not

• Do you present your clients with invoices for the work that you do for them?
• Do you carry out work for a number of clients?
• Are you responsible for the losses of your business as well as taking the profits?
• Can you hire other people on your own terms to do the work that you have taken on?
• Do you have control over what work has to be done, how the work has to be done and the time and place where the work has to be done?
• Have you invested your own money in your business or partnership?
• Do you provide any major items of equipment that are a fundamental requirement of the work you carry out?
• Do you have to correct unsatisfactory work in your own time and at your own expense?

If you can answer ‘yes’ to most of these questions then you are probably self-employed.

What are the advantages of being self-employed

Generally the advantages of being self-employed and operating as a sole trader are the ease of set up, the flexibility and the fact that all profits go to you.

The disadvantages include a lack of support, unlimited liability and the fact that you are personally responsible for any debts run up by your business.

What are the advantages of getting incorporated?

Generally if your volume of business is growing you should consider getting incorporated for the following reasons:

a)    Reduced financial risk: as your business grows and you engage in more contracts, the risk of operating as self-employed becomes substantial. A lawsuit will hold you personally liable with claim on your personal assets while in the case of a limited company your liability is exposed to the capital you inject in the business.

b)   Easier to negotiate contracts: clients will often find it easier to engage in a contract of larger size with a limited company for a number of reasons. There is more public information for limited companies (companies house), which allows them to make a more educated decision.

c)    Avoiding bureaucracy: Equally, some public sector organizations or larger companies will have restrictions on working with self-employed individuals for bureaucratic reasons like caps on employment (which often includes self-employed individuals). If you operate as a limited Company you will be able to bypass this.

d)   Tax efficiency: as you grow you will be able to structure your business more tax efficiently as a Limited company.