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Freelance work: tax and the law

by Work Rights Expert, Rachel Lewis

question
I am thinking about whether to go freelance but I’m a bit confused. What’s the difference between being employed and self-employed? Is being self-employed the same as being freelance?

answer
The technical differences between being employed and self-employed basically concern tax and legal rights. Dealing with the tax point first, an employee usually has tax and Class 1 national insurance via PAYE, deducted at source. If you’re self-employed, you’re normally responsible for paying your own tax direct to the Inland Revenue, usually under Schedule D. You also pay flat rate Class 2 national insurance contributions. And, if your turnover exceeds certain limits, you’ll also have to register for VAT.

Looking at the legal side – if you’re an employee, you make a contract with your employer. You have a number of legal rights such as in unfair dismissal and redundancy, maternity and parental leave benefits and notice payment. If you’re self-employed, you’re essentially your own boss – whether you’re setting up in business in your own right or you’re offering your services to a number of potential contractors, like a journalist writing for several different newspapers. In the latter case you’d probably call yourself a freelancer, but in practice, it’s the same thing as being self-employed. There is no ‘legal’ definition of a freelancer – it’s basically just a type of self-employment and tends to refer to the provision of services to various people or organisations.

If you’re self-employed, you don’t have all the legal protection given to the employed. However, a lot of recent legislation refers to ‘workers’ rather than employees, and this could work in your favour. A worker basically means anyone who is not in business on their own account. So, although the legislation won’t cover you if you’re setting up in independent business, it could well apply if you’re in freelance-type self-employment (depending on your contracting terms) – and it does give you protection as regards working hours and under the working time and minimum wage legislation.

Good luck with your decision.

Live Q&A on Ask The Expert
Employment lawyer Rachel Lewis advises on your work-related issues

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